Whether buying structured credit, investing in loan funds or setting up direct lending funds, today, private credit constitutes an important stream within the ocean of global finance.
However, this key segment of the investment management industry, also presents a range of challenges. Private credit remains a relatively illiquid physical loan investment. Fund managers require specialised systems and operational knowledge that support different credit strategies and instruments.
In this young and growing industry, the operational infrastructure is still maturing. This is particularly the case for private credit managers’ loan administration capabilities.
BNP Paribas, an established partner to some of the world’s leading private credit funds, and the Alternative Credit Council, the global representative of the private credit industry, invited clients and members to share their views on the challenges they face when administering loans.
We also explored the operational infrastructure required to support this function.
We are delighted to share the results of the survey with you, and we hope that the findings will inform you as you strive to implement the optimal operational model for your private credit fund.
Deputy CEO, Global Head of Government Affairs, AIMA & Alternative Credit Council
Global Head of Alternative Investors, BNP Paribas
The private credit industry has always been entrepreneurial: its initial growth was fuelled by managers seizing the opportunity to provide credit to underserved markets. In the ensuing years private credit has grown at a substantial rate, providing financing to the real economy and helping create jobs. The fundraising levels of both newer and more established private credit managers suggest that this growth will continue; research by the Alternative Credit Council (ACC) shows that the private credit industry will reach $1 trillion in assets under management by 2020. This rapid growth can make it easy to forget that private credit is still a relatively young industry, the operational infrastructure of which is still maturing.
Nowhere is this truer than in the case of private credit managers’ loan administration capabilities: the middle and back office aspects of a loan investment and the management of the attached operational risk. This component of a manager’s operational infrastructure can be a source of significant competitive advantage. A proper loan administration function allows private credit managers to easily and effectively monitor and manage their loans—a significant challenge in an industry that uses paper-based documentation and revolves around non-standard loans.
A robust loan administration function provides a solid foundation for private credit managers’ future growth, and allows them to balance that growth with the need to provide clients with bespoke lending solutions.
To learn more about loan administration, and how private credit managers can get the most out of their loan administration functions, BNP Paribas Securities Services and the ACC have conducted the research presented in this paper. Its findings come from two distinct sources. First, the ACC and BNP Paribas encouraged their members and clients, respectively, to participate in an online survey, the results of which form the foundation of this paper. Second, the ACC engaged in a series of structured interviews with survey respondents to better understand the primary issues private credit managers face when conducting loan administration.
 The Alternative Credit Council (ACC) represents asset management firms in the private credit and direct lending space. It represents over 100 members that collectively manage $350bn of private credit assets.
[2[ For more information, please see Financing the Economy 2017