The transformative power of portfolio management technology for today’s direct lending funds
Considerations when selecting your portfolio management solution.
Funds raised for direct lending hit a fresh high this year and it does not look to be slowing down with the U.S. Direct lending market, approaching the $1 trillion mark.1
Because of its rapid growth, the private debt markets become plagued by many inefficiencies including operational challenges and lackluster client experience. The adoption of technology solutions and platforms can transform private debt’s underwriting process, risk assessment, and portfolio management and in doing so, improve both efficiencies and the client experience. According to the Proskauer’s Trends in Private Credit survey for 2018, 87% of lending institutions indicated they were considering investing in software and technology in 2019.
It may be presumptuous to think firms haven’t implemented technology solutions, many have. However, many are “shoehorning” systems that are not built for the private debt markets only to find their overall reliance on spreadsheets has remained unchanged, or that one risk is replaced with another threat of equal magnitude. The challenge facing technology vendors continues to be developing functionality responsive to the growing complexity of private debt investing while keeping the flexibility and ease of use that drives the attractiveness of spreadsheets.
Can your technology navigate operational complexities?
Today’s managers should assess their technology strategy and if their infrastructure can properly support private debt. A lack of loan tracking and reporting systems create loan administration challenges. Closely linked to technology, data presents AN EVER increasing operational complexity. Data must be properly gathered, stored, secured, delivered, and reported as inaccurate data will cause confusion and error.
Whether because of pressure from regulatory agencies or investors, the push for transparency is increasing. Managers should consider all current reporting requirements for regulators and investors alike. They should also prepare for enhanced disclosure requirements and frame portfolio technology choice such that it supports those reporting requirements.
What should you look for from your portfolio management solution?
When looking at portfolio management solutions, consider the following in determining the fit for your direct lending fund:
- >Research and underwriting lending dashboard — can you analyze the creditworthiness of issuers/borrowers, monitor the investment pipeline, store documentation, and analyst commentary?
>Does the solutions offer covenant monitoring? Does it have the ability to create reusable covenant rules, and capture and centralize borrower time-series data?
>Does the technology allow for loan administration? Will it generate, track and deliver invoices, statements, and notices directly from the solution?
>Does it do reconciliation and data aggregation? Does it have a centralized data into warehouses and seamlessly augment that data with third-party content?
>How automated is process management? Does it streamline and automate processes through the system and diagnose any stale or missing data?
Today’s direct lenders must be able to manage the complexity of a deal pipeline and track vast borrower measures and specific loan covenants. If the technology you have under evaluation does not offer the functionality and depth that delivers increased productivity, it may leave your firm unable to show proper controls and defensible processes to both your investors and to regulators.
Learn more about one of the most awarded cloud-based Portfolio Management System in the direct lending market, Sentry PM.
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