Private credit has an opacity problem. Technology is solving it

One of the most complex private asset classes, private credit is facing unprecedented growth—and commensurate growing pains. Scaling up is a top priority, and technology will be essential to that mission. This blog series explores some of the technologies that will play a central role in private credit's continued evolution. In this post, Jocelyn Lewis looks at how technology is helping to build trust in the asset class by supporting the drive for greater transparency.

Private credit is notoriously complex, involving highly individualized deal structures, lengthy loan documentation, and nuanced performance metrics. Managing that complexity using spreadsheets, point solutions, and manual processes results in a lack of visibility that has been likened to a "black box" on more than one occasion. 

None of this has held back the asset class, which is now estimated to exceed $1.7 trillion globally, according to research by S&P Global. Private credit is now a powerhouse that rivals the public high yield bond market in terms of size and outperforms its returns.

But what has worked in the past will not work for the future. The anticipated surge in private credit funds and AUM will overwhelm GPs and LPs that are not investing in technologies that lend both scale and visibility to their operations and empower proactive asset management.

Scaling up

The majority of GPs are still using manual processes to gather portfolio company or asset-level data, such as financials, KPIs, and qualitative narratives, across diverse formats and sources. Workflows are fragmented across spreadsheets and other tools and platforms that variously support origination, underwriting, deal execution, servicing, monitoring, and exit. This lack of coordination and integration is the source of bottlenecks, friction, opacity, and inefficiency at every stage.

The issues are especially acute for private credit because of the bespoke deal structures that characterize this asset class and the need to closely monitor performance, covenants, cash flows, defaults, and recoveries throughout the credit lifecycle.

The status quo is already showing signs of wear, and it cannot scale without destabilizing operations or incurring linear cost increases. GPs need to find ways to automate the ingestion, consolidation, and normalization of data as well as the downstream monitoring and reporting workflows that rely on it. LPs face similar challenges and are demanding more frequent, granular, and timely reporting from their GPs, which further underscores the need for automation and scalable solutions across the ecosystem.

Building trust

Intricate capitalization structures consisting of increasing layers of debt tranches with PIK components, multiple classes of equity, hybrid structures, illiquidity and a scarcity of comparables all complicate valuations, making them harder to report on in a timely and consistent way. But as LPs allocate more capital to this asset class and demand more transparency, GPs need to deliver on the demand for stronger benchmarking, risk attribution, and reporting with robust, accurate data collection and streamlined processes.

Building trust with investors, auditors, and regulators involves providing visibility into exposures, risk, returns, and underlying asset health. The industry is also shifting from passive consumption of quarterly reports to ad hoc, on-demand access to relevant data.

Generating insight

S&P Global has been leading the charge to streamline and enhance private credit portfolio management for more than two decades, and iLEVEL Credit has evolved into one of our most powerful solutions for this asset class. 

We equip GPs and LPs with the technology to manage investments throughout the credit lifecycle at scale with:

• AI-powered automated data ingestion that extracts data from structured and unstructured sources. This includes  using Anthropic’s Claude LLM to power mapping between new metrics and existing data in iLEVEL.
• Automated workflows that ensure consistency and reduce operating costs.
• Integration with S&P Global software solutions and data, such as WSO and S&P Capital IQ Pro.
• Advanced capabilities for the most labor-intensive tasks including our new capital structure evaluation module, which models and monitors borrower trends across debt capitalization and associated KPIs.

Combined with our covenant monitoring solution, automated tear-sheet generation and performance tracking and benchmarking, we enable robust, proactive asset management at scale. 

Our iLEVEL Credit solution for private credit supports the drive for greater transparency by enabling private credit managers and investors to collect, visualize and report on a wider range of data quickly and reliably. It aggregates, tracks and normalizes borrower financials, covenants and loan terms across facilities, borrowers, funds/investment vehicles, and portfolios. The curated data powers dashboards, automates recurring reports and remains fully queryable for ad-hoc reporting, delivering timely, actionable insights.

It also delivers deeper visibility into risk and return for asset managers and investors, with a single source of truth that pulls data from structured and unstructured sources to monitor credit quality, performance and exposures across geographies and industries and key metrics such as leverage, LTV and EBITDA growth.

The future of private credit

The opacity that has characterized private credit in the past has been easy to forgive, given its consistently strong performance. But the future will bring faster growth and deeper scrutiny than ever before, with the asset class projected to continue its remarkable growth. To be ready for this opportunity, asset managers and investors are evolving. Through workflow automation, data management, and re-envisioned analytics and reporting, iLEVEL Credit is equipping private credit participants with the capabilities to continue delivering competitive returns—at scale—for this uniquely complex asset class.