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Growing private credit industry suffers admin problems

Private creditNine out of ten private credit investment managers have found challenges in loan administration and think it must be more robust to meet rising demand, a report said.

The two most common challenges for participants in the soon-to-be $1 trillion (€851 million) private credit market were reporting requirements to regulators and investors, and the limitations of existing loan-tracking systems.

Private credit is growing as more investment managers offer alternative lending to replace a vacuum left by the banks.

The Alternative Credit Council (ACC), the private credit arm of the Alternative Investment Management Association, surveyed private credit managers with a combined $120 billion committed to private credit, approximately 20% of the global industry’s committed capital base.

Its ‘Enhancing the Loan Administration Function’ report, which was sponsored by BNP Paribas Securities Services, found private credit managers were building more efficient back-office operations in order to overcome the challenges.

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.

Private credit, which is credit extended to companies or projects on a bilaterally negotiated basis that is not publicly traded and is originated or held by lenders other than banks, is a growing asset class.

Ian Lynch, head of alternative investors at BNP Paribas Securities Services, said private credit was a key segment of the investment management industry and playing a growing role in the real economy but that it also presented operational challenges to fund managers.

He added: “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.”

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