It’s no secret that the private debt market has become increasingly competitive. Private equity’s growth and banks’ decreased lending to smaller or riskier firms since the 2008 financial crisis, has led to the rapid rise of private credit in the form of increased capital allocation and new lenders. As 2017 and 2018 saw the highest and second-highest fundraising year for the asset class, according to a report by McKinsey & Company, it is critical for credit funds to have the right deal and relationship management technology. Credit funds, involved in either direct lending, sponsor-backed lending, or a hybrid of the two are under growing pressure from institutional investors to provide higher yields, even amongst a challenging and declining deal flow environment.
These are many reasons why DealCloud’s purpose-built solution is a compelling option for any firm that is looking to institutionalize their deal and relationship processes. The fund managers that will sustain clear competitive advantages will be those that leverage and embrace the transformative potential of technology to improve operational efficiency, adapt to changing conditions, and executive on their differentiated strategy.
DealCloud’s technology blueprint for credit and lending firms, combined with our fully configurable platform, provides lending firms with the tools they need to not only increase firm-wide transparency but beat their competition. Given the cutthroat environment that is resulting from the entry of capital and new credit funds, firms would be wise to adhere to this trend.
While each firm has intricate business processes and operating models that need to be accurately addressed by the technology adopted, our blueprints leverage the cumulative learnings and strategies of peer lending organizations and are therefore extremely effective in delivering a vertically-optimized solution. It’s true that some firms could spend time and energy configuring generic CRMs to fit unique deal and client management procedures, but DealCloud puts a debt capital markets-specific solution – backed by a team with extensive experience in the industry – to work on day one, including guidance on creating:
- Sourcing, deal origination, and relationship management for direct deals and sponsor-backed opportunities
- Exposure and facilities tracking and management
- Sponsor and corporate coverage models and reporting tools
Sourcing, deal origination, and relationship management for direct deals and sponsor-backed opportunities
For example, a popular approach DealCloud clients have adopted to measure their relationships with sponsors is “scoring.” By leveraging DealCloud’s algorithmic and machine learning capabilities, clients can apply a score to deals sourced from sponsors, based on a variety of parameters, to illustrate which relationships are the most effective. Deals that go further in a due diligence and execution process are assigned higher scores to reflect their quality. Deals that better fit your fund’s lending criteria are designated higher scores. In aggregating these scores, clients are presented with a clear picture of which sponsor relationships have been most fruitful.
Exposure and facilities tracking and management
Credit and lending firms have a particularly complex relationship web, especially when the facility is financed by an external lender. At the same time, lenders need to be particularly clued into their industry diversification and underlying risk exposure. Given DealCloud’s flexible platform, these items are easy to track and manage.
Corporate coverage models and reporting tools
DealCloud enables credit and lending firms to more proactively develop and nurture relationships with issuers and borrowers, which inherently increases proprietary deal flow (i.e., deals that were not generated from a sponsor). They do so by tracking activity and touchpoints with borrowers – each of whom has a dedicated coverage contact at the credit firm. This assignment and ownership model allows firms to better manage these relationships because they can set up notifications that alert the relationship owner when it’s been too long since a phone call or meeting has occurred with a borrower or potential borrower, for example.
As your credit fund grows in size and complexity, you will have a dedicated and knowledgeable team to leverage for building a solution that supports more complex processes such as covenant tracking and cross-currency swap proposals, for example. As an institutional knowledge base for your firm, DealCloud will provide a comprehensive solution to help you grow your business. Using your historical proprietary data and third-party data, the DealCloud platform can offer analytic insights into the drivers of success for your credit fund.