Technology driving the 'best outcome' for borrowers

The ability to be nimble is proving to be a competitive edge in the burgeoning ABF market. Participants in a recent SCI webinar on private credit highlighted the important role data and technology are playing in the evolution of this sector.

“Our goal is to double or triple our AUM, without the headcount growing commensurately,” said Patrick Hart, deputy cio and head of portfolio management and lending at ATLAS SP Partners. “So, the question is how do we create the appropriate operational leverage in our ecosystem? The answer is by building our own tools and acquiring technology or outsourcing to a specialist firm.”

He added: “For example, by parsing documentation, we can unlock information that allows our teams to make better credit decisions and use their expertise to focus on higher-value analysis rather than simply quality control. Bringing technology to bear enables the right credit lens to be applied to different asset classes, in order to drive the best outcome for borrowers.”

ABF transactions typically rely on unstructured data, such as underlying leasing agreements and performance metrics. Given the private nature of the market and its rapid growth, there is a desire for greater transparency, according to Scott Alintoff, svp, business unit executive, syndicated loans and private debt at FIS.

“Participants need tools to process and ingest a wealth of data and present it to their customers in a meaningful way. Clarity is facilitated by standardisation: increasing the standardisation of credit agreements would be a great first step,” he noted.

Hart pointed out that investors and lenders have their own approaches to data management. “Consequently, there will always be some uniqueness in terms of approach. However, as participants become more comfortable and the public and private markets merge, I anticipate that uniform reporting will facilitate a migration away from opacity. Greater transparency drives more robust financing solutions.”

AI is playing an important role in the evolution of the private credit market, but Alintoff suggested that “it can only get you so far down the road”. He added: “The market views AI as an interesting opportunity and a bit of an arms race is occurring. But currently it is being utilised for things like sharpening up blurry documents, for instance.”

With bank retrenchment post-financial crisis, consumers have changed the way they think about access to credit and capital. And, as the private credit market grows, opportunities are expected to open up for retail investors – with technology playing its part.

“Away from large financial institution complexes, high net-worth individuals and family offices are already looking at private credit opportunities. But the ‘bite size’ continues to decrease,” Hart confirmed.

With respect to the ABF segment specifically, Hart estimates the potential addressable market to stand at an eye-watering approximately US$20trn. “ABF has expanded from essentially being a leveraged loan replacement to addressing the broader credit market and providing a variety of alternatives to standard corporate lending products. In particular, we’re seeing continued interest in the energy transition and digital infrastructure sectors,” he explained.

Corinne Smith