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27 November 2018

The Quiet Explosion in Private Credit

Private credit is now a mainstream source of financing, fueling growth for small, medium, and large enterprises worldwide across a wide range of sectors. Per Preqin, the number of private debt funds reached a historic high of 389 at the end of Q2 2018. The growth of private credit funds is outpacing that of private equity, which explains why many PE firms are in the forefront of this transition. Moreover, while it is not quite to the point of dislodging traditional bank lending, all indications are that the trend towards private credit is not slowing or going away. 

Just how much growth are we talking about? The Alternative Credit Council, an affiliate of the Alternative Investment Management Association, likened it to the early growth of hedge funds in its “Financing the Economy 2017” report, saying: “Projecting the growth rate of the private credit industry over the next three years, it is quite conceivable that assets under management could grow to more than $1 trillion by 2020. Such a growth rate has not been witnessed by a subset of the asset management industry since the earlier years of the hedge fund industry, when the compound average growth rate (throughout the 1990s) for the industry was more than 25 percent.”  

Such growth would normally be called “explosive;” except it has been gradual and steady, without the usual hype and fanfare that accompanies large economic shifts. The reason for the growth of private credit is its appeal to all parties. Borrowers welcome the flexibility in terms, fast decisions, and the ability to undertake complex financings that banks might turn away. For investors, private credit presents an opportunity to earn attractive fixed-income returns in a low interest rate environment. Fund managers, meanwhile, are becoming increasingly experienced and disciplined in their ability to source deals and establish creditworthiness of borrowers.

Private credit fund structures and capital facilities are complex and present significant management and accounting challenges in both closed-end and open-ended funds – specifically what SS&C Advent’s Geneva® and Geneva World Investor are designed to handle. Geneva’s roots are in the hedge fund arena, and the solution has evolved along with the alternative investments segment with the addition of private equity fund capabilities. For Geneva’s hedge fund and private equity clients looking to add private credit to their mix, the good news is that they don’t need to go looking for another system to handle it. With purpose-built functionality for investment and investor accounting supporting complex fund structures, capital structures, and servicing for both open-ended and closed-end funds, Geneva is well prepared to take on private credit fund structures.

The steady growth of private credit represents a big opportunity for hedge fund and private equity firms. With Geneva World Investor, they have the ready-built technology infrastructure to take advantage of it, to learn more, contact us.