May 24, 2022 | Stamford, CT — As credit investors diversify portfolios by adding increasing amounts of private debt, they are stepping up the search for better data, analytics and other technology to help assess and manage risks associated with these opaque investments.
Half of the North American and European credit market investors participating in a recent Coalition Greenwich study diversified their portfolios over the past year in large part via private debt. Two-thirds of investors in the study plan to further diversify their portfolios in the coming year and nearly half expect to increase their private debt allocations even further.
“The demand for private debt points to the growth of both supply and demand for those instruments, the increasingly large role of nonbanks and fintech in that segment, and the cementing of this once-nascent segment as a core part of many institutional credit portfolios,” says Kevin McPartland, Head of Research in the Coalition Greenwich Market Structure and Technology group and author of Enhanced Data and Technology Support Credit Investor Portfolio Diversification.
Demand for Better Data
Due in large part to increasing allocations to private debt, 62% of investors find it difficult to examine the details of the companies in their portfolio as private company data is one of the biggest gaps.
“When a company with publicly listed equity taps the debt market, bond buyers have access to the same financial data disclosed to equity investors,” explains. “When buying bonds of private companies, however, disclosure requirements are much lower, leaving investors in those bonds to cobble together data from a variety of sources.” Kevin McPartland
The opaque nature of private issuers often results in an incomplete picture and the acquisition of data from different sources requires labor-intensive normalizing of data. Alternative data is growing in popularity, but has not yet reached the mainstream status in fixed income, with just over one-quarter of study participants using this data type today.
Needed: Customized and Integrated Portfolio Management
Portfolio management systems (PMS) bring together order management, data management, workflow tools, compliance, research, and other functions into a seamless one-stop shop of credit investing. Even with the acquisition of better data, these systems are pushed to the limit by portfolio managers diversifying their portfolios and expecting more real-time updates. To keep up with the evolution of credit markets, PMS providers must provide two things: customization, and seamless integration with downstream technology.
“Diversity is now a requirement in credit portfolios, and only with the right technology can those strategies be executed and ultimately succeed,” says Kevin McPartland.
Enhanced Data and Technology Support Credit Investor Portfolio Diversification analyzes the latest developments in PMS technology, the buy-side’s growing preference for the best-of-breed approach and the innovations most in-demand among credit investors. It also examines how interest-rates and other market conditions are fueling increasing investment in private debt, and how that growth is creating intense demand for better data and analytics.