Survey reveals challenges of loan administration

A striking 90% of fund manager respondents said they had identified improvements that needed to be made to their operational management around loans.

Ninety percent of private credit managers canvassed for a survey said they had identified various loan administration challenges.

The report – “Enhancing the loan administration function: marrying capacity and customisation” – was produced by industry body the Alternative Credit Council (ACC) and sponsored by BNP Paribas Securities Services.

Credit managers acknowledged that, as demand for loans increases, improvement was needed both in their own systems and those provided by third parties. The two most common challenges cited by respondents – which accounted for $120 billion, or around 20 percent of committed private credit capital globally – were reporting to regulators and investors and the limitations of existing loan tracking systems (both cited by 45 percent).

“What we find generally is that loans are not standardised,” Nick Smith, associate director of private credit regulation at the Alternative Investment Management Association – the parent organisation of the ACC – told PDI. “The type of lending is tailored to the circumstances of the borrower, which is great, but firms are challenged by that specificity.”

However, the survey found that private credit managers are taking action to address the shortcomings by building more efficient back office operations to meet the needs of their institutional and retail investors.

Almost half of those surveyed said they had already used third-party service providers to support their in-house loan administration function and 70 percent said they recognised that service providers could help them better manage non-traditional loans.

“Outsourcing is becoming a trend,” Ian Lynch, global head of alternative investors at BNP Paribas Securities Services, told PDI. “When we look at loan admin we put it together with our fund admin offering. That’s a more strategic, one-stop-shop approach than was offered previously and it’s worked really well for us.”

Equally, there was also a belief that firms could not rely entirely on off-the-shelf solutions due to the level of customisation in the asset class and the paper-based nature of many loan agreements.