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LEARN MOREThe global alternatives market has experienced both strong growth and continued resilience with AUM across all asset classes increasing at a CAGR of 10.7% from 2015 to 2021. Private credit (also known as private debt) is the third-largest asset class in the global alternatives space and has experienced unprecedented growth during a similar period, reaching $875 billion AUM by the end of 2020. Analysts predict a CAGR of 11.4% for private credit going forward, with AUM expected to reach nearly $1.5 trillion by 2025.1
Why Is Private Credit Gaining Momentum?
The growth of private credit is often attributed to the low-interest rate environment, which has driven investors to seek alternative investment options with higher yields than traditional fixed-income instruments. Over the past decade, for example, private credit has generated higher yields than most other asset classes, including 3-6% over public high-yield and syndicated loans.2 In addition, private subordinated and mezzanine strategies provide attractive financing further down the capital structure. Private credit is also gaining popularity due to its lower default rates and diversification opportunities.
As a result of all these factors, private credit, and private debt firms can capitalize on current market conditions by raising funds and expanding underwriting capacity. Borrowers are willing to pay a premium for the certainty, agility, and customization offered by private lenders, leading to a surge in demand for private credit.
While this surge in deal volume presents opportunities, it also poses new challenges for private credit and private debt firms. One of the most significant issues is performing thorough deal evaluations while maintaining underwriting quality. As deal volumes increase, firms must navigate the operational complexities associated with processing, documentation, and portfolio management, all at scale.
Technology Enables Efficient Risk Management and Operational Efficiency
To address this challenge, private credit, and private debt firms are turning to technology. With digital platforms fed by harmonized data, fund managers can perform risk analysis at the click of a button – and that’s just for starters. Other benefits include:
How IVP Can Help
Complexity defines the credit space. In private credit and private debt funds, managers must fund deals quickly while accelerating due diligence and managing risk for bespoke deals. The IVP for Credit solution is specifically designed to help funds manage this complexity efficiently. It is a comprehensive, automated platform that helps private credit and private debt funds execute deals more quickly, adapt to change more easily and maintain an elite level of agility throughout the investment lifecycle. Core capabilities of the IVP for Credit solution include the ability to:
As an industry-leading credit solution, IVP for Credit accommodates all aspects of a private credit or private debt fund, providing all the functionality lenders need to analyze borrower credit, perform risk management, define and track custom covenants on a per-deal level, codify robust deal approval processes and checklists, manage deal pipelines, and assess borrower risk by monitoring financials, covenant compliance, and operating KPIs.
Learn more about IVP for Credit or contact sales@ivp.into schedule a demo.
1 2022 Preqin Global Alternatives Reports. Available at: https://www.preqin.com/insights/2022-preqin-global-alternatives-reports
2 “Understanding Private Credit,” Goldman Sachs, October 2022. Available at: https://www.gsam.com/content/gsam/us/en/advisors/market-insights/gsam-insights/2022/understanding-private-credit.html
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