Recent growth in credit-based investment strategies can largely be attributed to changes in behavior following the 2008 financial crisis. In response to constraints on bank lending as a result of the crisis, borrowers began to seek capital directly from investors. The market for private credit (or private debt) more than tripled in the decade following the crisis, with significant growth in the Collateralized Loan Obligations (CLOs) market as well.
Private debt funds typically use hedge fund or closed-end fund structures, while CLO funds are agency-rated bundles of loans acquired from banks. There are many operational challenges that may arise for a fund delving into private credit or CLOs. Systems may not be readily adaptable. Manual processes can be cumbersome and increasing headcount to support operations can be costly. There is, however, a third option to streamline operations and bring efficiency to the middle and back office鈥攐utsourcing.
Outsourcing can reduce IT investment and operational overhead. However, not all outsourcing providers are equal, and it鈥檚 important to choose one that has already invested in both infrastructure and specialized expertise across the loan market and all its different fund structures. Other hallmarks a firm should consider include:
- Comprehensive middle-office capabilities
- Data aggregation
- Compliance
- Performance measurement, attribution and risk management
- Trustee shadowing
- Communication and transparency
- Continual reinvestment in technology
SS&C鈥檚 expertise in loan-based strategies positions us to deliver operational support for all asset classes and fund structures across the globe. Download our whitepaper, Operational challenges for credit-based investment strategies, to learn more about the unique challenges firms are facing in the private credit/debt and CLO space, and how SS&C can help address those challenges.
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