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SimCorp introduces private debt as part of alternative investments strategy

Since the financial crises in 2008, the market for private debt has moved from being dominated by banks to include an increasing number of institutional investors.

With continuing low interest rates in the market, appetite for alternative investments continues to soar. One such alternative is private debt, offering returns that can outperform some equity and fixed income indices, as well as low correlation with other asset classes. Especially as an alternative to traditional fixed income investments, investing in private debt (direct loans, syndicated bank loans etc.) provides favourable returns compared to the risk taken.

Since the financial crises in 2008, the market for private debt has moved from being dominated by banks to include an increasing number of institutional investors. A recent Preqin survey showed that "54% of institutional investors surveyed now invest in private debt,’’ and that "the average current allocation to private debt (as a proportion of AUM) is 5.6%."

The challenge for investors however, is to keep the operational structure scalable. The handling of these commitment-based investments (loan facilities) can be very complex as multiple drawdowns from borrowers can result in the need for handling parallel terms for accruing interest rate, term length etc. Payment in kind is used for loan facilities, and trading syndicated bank loans in the secondary market requires special handling of delayed settlement and related special fee handling. When trading in the secondary market you also need to keep track of issues like participation/assignment trades where you in some cases need to keep track on counterparty positions as well as your own.

As part of our alternative investment strategy, in release 6.0 we will launch a new module to handle private debt investments. The module will enable a completely new and flexible structure for handling these loan facilities with the focus of supporting an effective and transparent workflow covering the investment value chain.

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