Conquering Complexity in Credit Funds

For hedge funds, the credit space is one of the most complicated and competitive. Each part of the market is remarkably di­fferent from the next, and each offers a unique set of challenges. This makes it very difficult for funds to support credit market workflows with efficient and flexible technology.

Yet, the growth opportunity is undeniable as middle market lenders who typically have 100 or 200 open loan positions are expecting to see their loan portfolios double or triple. But when each loan has bespoke covenants, the challenge for credit funds is how to capture these nuances quickly and eff­iciently while monitoring and managing default risk.

The typical process, involving spreadsheets and manual checks, is error prone and time-consuming. In short, many funds are missing opportunities for growth due to their non-scalable tech and operational processes. As a result, hedge funds in the credit space frequently end up with a patchwork of infrastructure that is expensive to maintain and difficult to scale.

Patchwork technology solutions, even if they work well today, do not off­er a sustainable answer for most credit funds. With a more holistic and modular approach, teams can build a reliable platform that is designed to evolve—without sacrificing any of the unique needs or workflows that define each line of business. Instead of acquiring a module that solves one problem today, firms can build a platform that addresses current needs and can adapt to future challenges by taking a more holistic and modular approach.

This begs the question: what does a holistic private credit portfolio management system look like? While the specifics may vary, the fundamentals should not. Any end-to-end solution for the credit space should cover the entire trade flow (ideally with a credit OMS solution), draw data from numerous sources into a Data Quality Management solution (to cleanse and normalize it), offer credit analytics, provide portfolio monitoring, integrate easily with a wide range of applications, and provide reports with bi-temporal time series and audit capabilities on every attribute. Furthermore, it should be developed by experts in the credit space and have a proven track record of success.