Private credit assets under management have grown steadily for the past several years. While Asia has seen only a modest share of that growth, demand for private credit solutions is on the rise as small and medium-sized enterprises seek alternatives to bank loans and investors look for risk-adjusted returns and predictable cash flows. There are advantages to launching a private credit fund in such an environment, but new entrants to the market should be aware of the unique staffing and operational challenges of these funds.
In the pre-launch phase, it’s important to build a strong team around credit, including people who can make site visits, meet with management teams and assess borrower creditworthiness. This is also the time to build the operational ad technology infrastructure, with a strategy that accounts for long maturities, interest rates and fees, and waterfall structures. These are the areas that are so different from private equity. Finally, for technology, you need a flexible system that can handle various asset classes.
For new entrants in private credit who have experience in other fund types, it’s important to understand what makes private credit unique. It’s very difficult to adapt a data model from, say, a private equity fund, and likely needs a full architectural review. One common mistake is assuming that switching to a private credit fund is as simple as using a different strategy. But private credit funds have different components, and the account infrastructure needs to be optimized for internal management as well as for investors’ requirements. This is especially important when adding private credit to the mix of assets you already manage. The right technology and services will be able to reduce pain points and allow you to scale your business more efficiently.
SS&C is the world’s largest fund administrator and a leading provider of outsourced technology and operational services for the global investment management industry. With offices and clients spanning the major financial centers of North America, Europe and Asia-Pacific, we bring a global perspective on best practices in fund operations.