Some 90% of private credit managers identified various challenges in loan administration in “Enhancing the loan administration function: marrying capacity and customisation”, the first survey of its kind by the ACC, sponsored by BNP Paribas Securities Services. Credit Managers acknowledged that improvements were needed, both in their own systems and in services provided by third parties, to enable the sector to continue to grow rapidly.
The ACC surveyed private credit managers with a combined $120 billion committed to private credit, approximately 20% of the global industry’s committed capital base. The main finding is that nine out of 10 private credit fund managers face challenges when administering their loans. The two most common challenges, cited by 45% of respondents, were reporting requirements to both regulators and investors and the limitations of existing loan-tracking systems.
The paper found private credit managers are building more efficient back-office operations in order to overcome those challenges and meet the needs of institutional and retail investors.
Almost half of the respondents said they already use third-party service providers to support the in-house function, while 70% said they recognise that service providers could help them better manage non-traditional loans. At the same time, there was recognition in the report that many firms could not rely entirely on off-the-shelf solutions, given the level of customisation in the industry and the still paper-based nature of many loan agreements.
Demand for private credit has grown significantly in recent years, as it has offered borrowers access to finance and investors access to higher returns in a low global interest rate environment. The ACC estimated in a report in 2017 that the private credit industry would reach $1 trillion in assets under management globally by 2020.
“The private credit industry is maturing, and dealing with rapidly growing demand for its services. As such, both smaller and larger private credit managers are faced with the need to upgrade their internal infrastructure or to partner with sophisticated service providers in order to keep pace with their growing businesses.”
ACC Deputy CEO Jiri Krol
“Private credit is a key segment of the investment management industry and one which is playing a growing role in the real economy. However, it also presents a range of challenges to fund managers from an operational perspective. As private credit remains a relatively illiquid physical loan investment, fund managers require specialist systems and operational knowledge that support different credit strategies and instruments, while reporting to both clients and regulators can be complex. Fund managers need to adapt accordingly.”
Ian Lynch, Head of Alternative Investors at BNP Paribas Securities Services
Alternative Investment Management Association (AIMA)
Kaveri Niththyananthan firstname.lastname@example.org +44 (0)20 7822 8380
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BNP Paribas Securities Services
Simon Danaher firstname.lastname@example.org +44 (0)20 7595 9108
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About the Alternative Credit Council (ACC) (www.lendingforgrowth.org)
The Alternative Credit Council (ACC) is a global body that represents asset management firms in the private credit and direct lending space. It currently represents over 100 members that manage $350bn of private credit assets. The ACC is an affiliate of the Alternative Investment Management Association (AIMA) and is governed by its own board which ultimately reports to the AIMA Council. ACC members provide an important source of funding to the economy. They provide finance to mid-market corporates, SMEs, commercial and residential real estate developments, infrastructure projects and trade and receivables businesses. The ACC’s core objectives are to provide guidance on policy and regulatory matters, support wider advocacy and educational efforts and generate industry research with a view to strengthening the sector's sustainability and wider economic and financial benefits. Alternative credit, private debt or direct lending funds have grown substantially in recent years and are becoming a key segment of the asset management industry.
About AIMA (www.aima.org)
The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with more than 1,900 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than $2 trillion in hedge fund or private credit assets. AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry. AIMA set up the Alternative Credit Council (ACC) to help firms focused in the private credit and direct lending space. The ACC currently represents over 100 members that manage $350 billion of private credit assets globally. AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialised educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors).
About BNP Paribas Securities Services (www.securities.bnpparibas.com)
BNP Paribas Securities Services, a wholly owned subsidiary of the BNP Paribas Group, is a leading global custodian and securities services provider. It had assets under custody of EUR 9.4 trillion as at 31.03.2018. Backed by the strength of the BNP Paribas Group, we provide multi-asset post-trade and asset servicing solutions for buy and sell-side market participants, corporates and issuers. With local expertise in 36 countries and a global reach covering 90+ markets, our network is one of the most extensive in the industry, enabling clients to maximise their investment opportunities worldwide.
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