The heightened competition in the private investment markets has led to an increased demand for faster investment cycle which in turn needs more transparency and faster due diligence of the investment being made. Consequently, private debt investments will be subjected to the same as they comprise a sizable portion of this market. Debt funds typically have complex workflow structures, and even though there aren’t many deals to be assessed, there are still a lot of data points to be collected, processed, and computed to manage and track the portfolios. To streamline this process, debt fund managers can use technology and streamline their operations using private debt solutions.

The use of technology helps private debt firms to create a single source of truth, manage their portfolio investments, and execute quick statistical analyses, ultimately enhancing their operations. However, it is required for private debt firms to assess the correct private debt solution to ensure that it suits their needs.

Private Debt Solutions to improve the efficiency of Debt Fund Operations

Front and middle office operations such as Deal Flow Management, Investment Management, Portfolio Monitoring, Risk & Compliance, and Investor Relations Management are very critical (pre as well as post-investment). Any lag in operational efficiency in any of these operations results in overall inefficiency. Using private debt solutions to increase the efficiency of these operations will help debt fund managers to achieve effective end-to-end investment lifecycle management and aid investment decision-making.

Deal Flow Management

Private debt solutions enable end-to-end deal lifecycle management by offering:

• Single data repository for all potential deals

• Simple and intuitive mechanism for automatic deal creation
• Capability to configure deal stages and fields as per business requirements
• Easy tracking of the deal at all the stages via customizable workflows
• Comprehensive reports based on real-time analysis

Investment Management

Private debt solutions aid extensive analysis and management of investments by offering:

• Support for multiple tranches and asset warehousing
• Capability to capture cash flows and valuations and automatically calculate IRRs and MoCs
• Capability to automatically generate Amortization/Repayment schedule accommodating dynamic scenarios such as Moratorium, Repayment Frequency, Cash Interest, Default Interest, Accrued Interest, Upside and Redemption Premium
• Real-time analysis of data and generation of comprehensive reports

Portfolio Monitoring

Private debt solutions streamline portfolio monitoring by offering:

• Single platform depicting the entire workflow of an investee company’s financials for quick performance analysis
• Support for setting up multi-level portfolio company structures and capturing financials at each level
• Capability to set up formula-driven financials/KPIs and track them across different cases such as actual and budget etc
• Investee Portal for easy upload of data by the investee companies themselves
• Comprehensive reports based on real-time analysis

Risk and compliance management

Private debt solutions help in the effective enforcement of rules and regulations to meet compliance requirements by offering:

• Capability to define Financial and Non-Financial Covenant Rules
• Configurable compliance checklists with alerts and notifications
• Capability to store and manage important KYC documents
• System alerts based on the defined threshold to generate automatic updates on actual vs. threshold values
• Multilevel firewalls on any information flows, audit trails, and audit logs of user activities

Fundraising & Investor Relations Management

Private debt solutions empower the investor relations team by offering:

• Powerful communication and reporting tools like a centralized repository, flexible investor reporting setup, digital signatures along with a feature-rich email client to send periodic investor-specific communication.
• Capability to capture detailed investor information, track multiple LP team members, and map investors’ investment preferences
• A robust workflow to track fundraising across multiple stages
• Real-time analysis of data and generation of comprehensive reports

Fund Administration

Private debt solutions allow the fund managers to efficiently manage Fund Administration activities by offering:

• Support for setting up complex fund structures and capturing fund costs, investment cashflows, and valuations
• Capability to monitor investment performance via auto-calculated metrics including Fund IRRs, DPI, RVPI, and TVPI
• Automation of drawdown and distribution operations
• Real-time analysis of data and generation of comprehensive reports

Reports and Analytics

Private debt solutions enable the investment teams to efficiently save the massive effort spent in data analysis and reporting by offering:

• Easy-to-use interface for custom analyses of complex scenarios through dynamic filters
• Capability to easily generate charts, graphs, and data sheets via comprehensive analytics tools to perform quick data analysis.
• Predefined industry-standard reports (including ILPA compliant reports), by unifying data across modules on the most critical metrics.

Conclusion

Digital transformation is a must for all industries to remain competitive in the market while minimizing operational costs. Likewise, it is for the Alternative Investment Management industry where efficient use of technology can turn around the productivity of the investment teams and be on top of their game to overcome any portfolio vulnerabilities effectively.

Authored By: Ankur Agarwal (Co-founder & CTO, PE Front Office)

Published In: CXO Outlook