Investments in loan products of various types have become popular in recent years. With ongoing volatility in the equity markets and interest rates recovering from historic lows, investors are looking to syndicated bank loans, private debt, and other credit-based instruments for stability and predictable cash flows.Â
PARTNER CONTENT
By Steve Sulecki
Director, SS&C Advent
Investments in loan products of various types have become popular in recent years. With ongoing volatility in the equity markets and interest rates recovering from historic lows, investors are looking to syndicated bank loans, private debt, and other credit-based instruments for stability and predictable cash flows.
With institutional investors allocating to debt funds in growing numbers, it’s not surprising private equity and hedge fund managers are interested in diversifying into this sector. However, they are navigating significant operational and accounting challenges.
Despite the growth and sophistication of the loan market, it is still largely paper-based and dependent on manual processes. Loans are arguably the most complex asset class for accounting and reporting. Loan facility documentation is often unique to each lender and the structures, terms and covenants are often highly tailored to the borrower. With little standardization and few opportunities for automation, firms find it challenging to achieve processing efficiency and speed to make the business scalable and profitable.
Portfolio accounting systems built for traditional equity or fixed-income investments cannot handle the many moving parts associated with a bank or private debt. Firms often resort to spreadsheet-based workarounds to calculate the valuations of their loan holdings and allocate payments to investors. This manual process is inefficient, time-consuming and increases the risk of errors. Even firms tracking their loans in investment management systems struggle to gather the data points required to formulate positions on trade dates. While these details may be available in the credit agreement, it entails parsing large amounts of information to extract the correct data elements required by the system.
Agent bank event notices present a particular challenge. Notices of rate changes, interest payments, drawdowns, early paydowns, restructurings, payment-in-kind and other events are typically provided in PDFs attached to emails. Fund managers must extract relevant data and resolve any discrepancies with the agent banks. Operations teams must then convert the data into digital formats for processing and manually enter data into their accounting systems—a laborious process fraught with risk.
To take advantage of opportunities in the loan marketplace, firms need an advanced fund accounting system with the flexibility to support various loan types and structures. Firms should be able to manage the entire loan lifecycle on a single platform, from transaction processing and settlement to accruals and income payments, as well as cash flow projections, valuations, amortization and reporting.
SS&C Geneva forms the backbone of portfolio and investor accounting management within our fund administration offering, SS&C GlobeOp. The technology solution and fully outsourced service support all types of debt instruments and a full range of alternative asset classes, eliminating the need for multiple systems to account for different kinds of loans.
Firms investing in loans also require an efficient means of entering non-standardized loan data into their systems for faster, straight-through processing and improved accounting accuracy. Advances in modern technology, including optical character recognition (OCR), machine learning and natural language processing (NLP), are making it possible to digitize agent notices and reduce the time, labor, and risks associated with entering data manually.
Investing in loans can achieve diversification and stability in otherwise uncertain markets. SS&C is committed to modernizing the marketplace and overcoming the operational barriers to growth, ultimately enabling more managers to participate and reap the benefits of this growing market.
Steve Sulecki, Director, SS&C Advent – Stephen Sulecki currently leads the Geneva web product management and workflow manager teams at SS&C Advent. Stephen has over 16 years of experience working closely with SS&C clients to implement bank debt solutions in Geneva, including integrating the system with third party loan data providers. Stephen is the lead PM on the SS&C Loans integration effort. He works remotely from Salt Lake City, UT and loves to hike in his spare time.
