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Private credit administration: Do you have the right balance of talent, expertise and technology?

23 August 2022

Jeffrey Drinkwater

Senior Director of Fund Sales, US

Jeffrey Drinkwater

Senior Director of Fund Sales, US

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Private credit is complex and resource-intensive. But having the right talent and technology can provide business insights and reduce the administrative burdens

Private credit is booming. Assets in private credit funds now total USD 1.6t, a 53% rise in five years. Intertrust Group’s review of work by data analytics company Convergence Research identified 3,967 private credit funds at the end of March 2022 – a 56% increase since 2017.

This astonishing growth is set to continue as investors seeking superior returns move into the alternative asset space.

However, the private credit sector is at an evolving stage where its operating model and effective best practices are still being finetuned.

While many firms are expanding into private debt funds or adding to their existing debt portfolios, not all of them have the back-office expertise they need to administer this complex strategy. According to a report by the Alternative Investment Management Association (AIMA), 90% of private credit managers say they are experiencing issues with loan administration.

At a recent roundtable in New York, hosted by Intertrust Group, private fund chief financial officers, chief operating officers and investors discussed opportunities and the main challenges in private credit.

Top of mind was a shortage of talent and relatively high staff turnover, which has a knock-on effect on the effective management of loan lifecycles.

They also face challenges around private credit’s operational complexity with managers trying to scale up while grappling with manual processes, spreadsheets and hundreds of pages of documentation and legal agreements.

Private credit is facing a talent shortage

The sector is suffering from a talent shortage which is specific to private credit because of its complexity and the longevity of the loans.

It is an asset class that relies more heavily on the talent pool than any other asset class because of the variability.

In fact, private credit is more dependent the talent pool even than the technology.

Another challenge that managers have to deal with when working with third party administrators is that they too often have a shortage of appropriate technology tools and the right people.

Loan lifecycle challenges

The secondary challenge for private credit is the lifecycle of the loan, which is linked to the talent shortage situation.

Loans are long and complex. If you are having high staff turnover, it’s difficult to keep track of those data sets that change over a long period of time.

Currently, in-house administrators struggle to provide the necessary daily digest of data that managers need. Different teams within the same fund administration service can have varying abilities.

In private credit, the cadence of activity around the loan is far more frequent and this makes it even more vital that administrators understand the technology tools and anticipate what will be needed during the life cycle of that loan.

In addition, each loan or asset has a life cycle which requires their own specific variances.

The role of technology in data mining

Data mining is becoming crucial to business insights and to delivering the information that investors demand.

It is now common for data sets to be needed within 24 hours, with daily reports being provided to investors.

Demands for transparency around data are increasing, which create challenges in responding to requests, where that data comes from and how to present it.

Managers need to be able to access and assemble very specific data in a bespoke format and on a regular basis.

While technology can deliver this, it requires specialist knowledge of systems to be able to pull out what is needed, especially if different systems cannot communicate effectively.

According to the AIMA report, close to half of managers with debt funds (45%) cite the limitations of their existing technology to track loans as an operational challenge. In fact, technology is one of the top three challenges for this fund type.

What are the data needs of private credit?

Private credit covers a variety of industries, from aircraft leasing to litigation finance, direct loans and supply-chain finance.

While diversification yields attractive returns, it also brings a host of different compliance requirements.

These are complex assets. Everything is bespoke, with no standardisation of deals, reporting, data or cash flow.

In terms of how these transactions are structured, there is no one-size-fits-all in the private credit spectrum. This can present considerable administrative hurdles for private credit managers.

What does the future hold for private credit?

The private credit space is in the early phase of maturing its operating model.

This means that the sector is still defining effective best practices and managers are evolving in their approach. There is a huge variety of options and this is where strategic outsourcing can be of assistance.

For private credit fund managers, their system and technology choice may be sound but one system will not fulfill all their needs.

Managers are searching for a solution which will help them manage the daily cycle of reporting and granularity of data that they need to analyse and format

A good outsourcing partner can leverage other platforms as an extension of your organisation and provide the flexibility in operations and standards in reporting that is required.

How Intertrust Group can help with private credit

The variety of data required to run a successful strategy, meet investors’ demands and comply with regulatory requirements can be overwhelming.

At the same time, the diversity of assets makes it difficult to standardise reporting and make the best use of the data collected.

At Intertrust Group, we have highly professional and specialised teams for this purpose, who can meet global and diverse requirements.

Our specialists are supported by bespoke automation systems that allow a fast and monitored process.

This means we can tailor the presentation of the enormous amount of data to meet strict regulatory and investors’ requirements with individual and customised software solutions.

Why Intertrust Group?

  • Intertrust Group is a publicly listed company with more than 70 years’ experience in providing world-class trust and corporate services to clients around the world.
  • We are experts in management and administration services to operational companies and holding structures across the globe.