In an extraordinary 2020 financial environment, private credit emerged as the rising star among alternative investors. Its growth trajectory outperformed other alternative investment sectors, bolstered by demand from both borrowers and investors. According to the Preqin Quarterly Update: Private Debt, Q3 2020, “one of the drivers of fundraising activity across the private debt space is the yield spread over 10-year government bonds. Across many sectors, and for investment-grade issues, yield premiums can be more than 150 bps, making these investments attractive on a relative basis.”1
In a recent SS&C Advent whitepaper, Private Credit and the Pandemic: Uncertainty Creates Opportunity, we examine the impact of the global health crisis on the private credit market, including distressed debt investments. For many investors, particularly those willing to execute on risky strategies, market uncertainty has spawned a multitude of alpha-generating opportunities. In its Q2 2020 private credit update, Preqin argues that “The economic fallout from COVID-19 has created opportunities for higher-risk private debt strategies…. The proportion of investors targeting distressed debt funds over the next 12 months has increased from 38% a year ago to 60% in Q2 2020.’”2
For investors eager to capitalize on current market conditions, credit strategies offer a chance for alpha. However, these investments can prove to be an operational nightmare for a number of reasons:
- Managers need to consider the mired of workflow and accounting hurdles that stem from managing the intricacies and complexities of these strategies;
- Many firms are reliant on obsolete accounting systems that were built for traditional portfolios, leaving them exposed to inefficient workarounds and challenges to tracking the different fee agreements among investors;
- In the wake of the pandemic, investors also have a heightened interest in their managers’ business continuity and disaster recovery plans and funds will be under pressure to demonstrate operational resiliency
Private credit is proving to be one of the more resilient sectors of the investment landscape. Fund managers that have the right operational underpinnings will be better positioned to take advantage of the unusual opportunities these uncertain times present.
To take a deeper dive on opportunity creation, download our whitepaper, Private Credit and the Pandemic. And, to find out how Geneva can help you leverage these opportunities, request a demo.
1. Preqin Quarterly Update: Private Debt, Q3 2020. (2020, October 7). Retrieved from: https://www.preqin.com/insights/research/quarterly-updates/preqin-quarterly-update-private-debt-q3-2020
2. Preqin Quarterly Update: Private Debt, Q2 2020. (2020, July 8). Retrieved from https://www.preqin.com/insights/research/quarterly-updates/preqin-quarterly-update-private-debt-q2-2020