CFO Forum: Growing with the times

The finance, compliance and the operations part of alternative credit firms must keep up with the asset class’s rapid development, according to speakers a PDI’s CFOs and COOs forum.

As private debt continues its rise, the role of the chief financial officer is evolving to keep pace, said speakers and delegates at the inaugural PDI CFOs & COOs Forum this week.

That change has not been without growing pains, however. Among the topics on attendees’ minds were service outsourcing; technology; and the nuances of managing both public vehicles – such as a business development company or interval fund – and locked-up private funds.

Some of the finance and compliance professionals in the room had a seemingly simple question: is it better to outsource fund administration, loan monitoring, accounting and the like, or should those capabilities be brought in-house? The consistent answer: it depends.

One panellist said his firm had considered hiring a third-party for loan administration, but after an analysis, concluded the time spent doing the task in-house was manageable enough that it could not justify the outsourcing cost.

The story may be very different for a bigger asset manager with an array of different vehicles, though. One person from a large multi-strategy firm spoke about how there has been a push to move more of those functions in-house.

Technology was also front-of-mind for many firms. One apparently straightforward produced a more ambiguous answer: is it better to build necessary software systems or buy them off the shelf? Again, that depends on the firm, its needs and its goals.

A challenge of buying the necessary hardware comes as to whether the preferred products complement each other well: can they run in tandem without throwing the other one off? For example, something as simple as a software update might make one portion of the accounting system incompatible with another aspect of the larger finance management system.
Another panellist urged credit managers to share their technological capabilities with each other, as this person feared the possibility of a “blowup” that would taint the asset class. This person also noted that technology is not a big differentiator, saying that even with the most advanced systems, relationships are still paramount.

As the private credit space has grown, so has the number of publicly-traded investment vehicles and the number of managers overseeing those types of funds.

Because of Securities and Exchange Commission reporting requirements, BDCs are exposed to much more public scrutiny than private funds, but that does not mean managers oversee the latter any differently than the former. BDC positions are valued on a quarterly basis, and some of the conference attendees said their firms did the same for their private funds.

The financing of public and private vehicles varies, however, a third panellist noted. Public vehicles are much easier to finance, as they often involve lines of credit, while using a private fund requires managing subscription lines and the timing of capital calls, this person explained.