Private Credit: Where to start

The Private Credit industry is expected to grow from a current estimated $1.7 trillion to over $2.8 trillion by 2028 (Morgan Stanley) and with that growth comes a myriad of operational challenges from data integrity to?hardware and software systems management. Conversations we have had with more than 50 practitioners, spanning numerous roles from technical to business leads, have identified a laundry list of key initiatives in need of rearchitected solutions across the investment lifecycle from origination, gathering Portfolio Company (PortCos) information, and ongoing performance reporting. ???

To address many of these issues, senior managers have often hired large consulting firms at high costs to execute an Operational Assessment. While an excellent strategy, especially at large firms where it is difficult to obtain consensus on optimal technology architecture, we have witnessed many million-dollar consulting engagements that served only to rubber stamp operational complications that management had already identified. This has often led to suboptimal overall outcomes for numerous stakeholders. ?

Alternatively, utilizing existing business priorities and technology systems can lead to disparate systems in need of streamlining, integration and optimized data workflows and processes.?Organizations clearly function better when aligned on common objectives; however, human nature often leads to conflicting assessments & priorities that result in functionally incompatible or organizationally mis-aligned outcomes. Below are just some of the thirty-plus challenges faced by organizations that our Private Credit Team has encountered in our 200+ collective years of experience in the investment management industry:?

• Inaccurate IBOR resulting in trading losses?
• Lack of scalability limiting new business or deteriorating the accuracy of existing reporting?
• Incomplete & inaccurate data sets challenging credit monitoring and portfolio modelling?
• Disorganized data ingestion into FP&A potentially impacting realized profits ?
• Capability gaps that delay or prevent the on-boarding of new LPs?

We at Brooklyn Transformation believe the most effective approach is to pick two to three core priorities and collectively align the organization behind them.?This approach has proven to be more effective in terms of operational integrity, resource utilization and results optimization by:

1. Aligning limited time, human & capital resources and management attention behind fewer core objectives,
2. Ensuring objectives focus and instills execution discipline,
3. Facilitating a cross-functional, cross company collaboration with buy-in from all groups, and
4. Promoting a positive ROI potential with project dollars focused on impact aligned with your CFO.??

?

As an example, consider a foray into the wealth sector and the desire to introduce a product with quarterly liquidity options:?

• The legal team may need advice on structuring the fund?
• Accounting processes and practices may need to be adopted to achieve quarter-end deadlines?
• New decision-making processes likely will be required for the investment committee?
• New subscription / redemption processes may be required?
• New service capabilities will be needed to support LP questions?
• Back-office reporting may need enhancement and integration?
• Cash forecasting and reconciliation may need enhancements?

?

None of these developments are particularly difficult in isolation but the lack of coordinated effort across all departments dramatically reduces the likelihood of success.?

?Inherent in each of the above sample project workstreams is the concept of thin slices.?Thin slices are low code, easily deployed & managed software solutions targeted at specific workflows and systems. By choosing to address only the challenges required to achieve the objective, you limit the scope and duration of the project.? This dramatically reduces the risk of failure that most companies feel when they begin a large project.? In the above Accounting workstream, for example, a firm may have a very discreet objective of deciding how they will handle the NAV of a delayed draw term loan (DDTL) if it is being restructured (and is in an ‘unfunded’ state) over quarter end when subscriptions and redemptions are taking place.? Inconsistencies in practice are a sure-fire way to earn unwanted regulatory attention.?

What are your business objectives for 2025 and how will you align your organization around them?? Our Private Credit team is available for discussions.???

?

Email:[email protected]

Calendar: Schedule

More information: https://brooklyntis.com/