The $800 billion private credit market is currently facing one of its first of major tests since the 2008 financial crash, offering potential opportunities that could come with added challenges.
Private credit funds are experiencing an uptick in activity from the economic disruption caused by COVID-19. Due to the significant growth in AUM (entered 2020 with more than $250 billion in dry powder) over the last decade and unique liquidity challenges facing organizations today, private credit fund managers are seeing a surge in the number of lending opportunities.
According to J.P. Morgan Asset Management’s Head of Private Credit Meg McClellan, “borrowers suddenly have temporary financing needs as their traditional sources of capital have dried up,” which has opened a new door for many private credit funds to continue deploying cash despite continuous market volatility. In addition, a recent survey conducted by Proskauer finds that “many funds are seeking out new lending opportunities, with a particular focus on the healthcare, business services and software and technology industries.”
As funds navigate the challenges that have coincided with this new market environment, they are still facing many long-established issues due to the inherent complexity that defines the private credit space as each individual line of business (mezz, special situations, syndicated credit and direct lending) and deal/borrower is bespoke in nature and terms of lending. Specialized deals long favored by funds add complexity to trade processing, mainly around pre- and post-trade compliance, allocations, covenant monitoring, risk management and reporting processes.
With the advent of these new market demands and opportunities, private credit funds’ internal platforms are experiencing greater strain due to the fact that they are largely run using manual spreadsheets, shared drives and Slack/team channels, making it difficult to scale while monitoring and managing risk effectively. Patchwork technology solutions, even if they manage to work today, will not offer a sustainable answer for most credit funds moving forward.
By harnessing a more holistic and modular approach, teams can build a reliable platform that is designed to evolve without having to sacrifice any of the unique needs or workflows that define each line of business. Through the implementation of a comprehensive and integrated platform, funds can overcome these challenges to take advantage of this new market environment and ultimately cut through complexity with ease.
Core benefits of an automated credit solution include the ability to:
- Provide a 360-degree view of a deal (both during due diligence and post-funding) with a single place to view credit quality, covenant compliance, UW thesis and current projections
- Handle investor requests efficiently for historical aspects due to having a complete history of the deal and associated attributes available within the system
- Increase operational efficiency by managing deal pipeline workflows and checklists
- Standardize due diligence processes across the entire investment team
- Manage tasks, reminders, notes, meeting schedules and updates on the go
- Generate insights with portfolio management and analytics
- Ensure a robust/audited expense allocation process to LPs and regulators
- Manage cash projections, liquidity and forecasting in a consolidated view
As an industry-leading credit solution that scales across all aspects of a credit fund (CLO, syndicated, RE and private credit), IVP Credit includes all the functionality lenders need to analyze borrower credit, perform risk management, define/track custom covenants on a per-deal level, codify robust deal approval processes and checklists, manage deal pipelines, and assess borrower risk by monitoring financials, covenant compliance and operating KPIs.