By: Allvue Team
August 17, 2023
Private debt has seen a banner decade, and even more growth in the short term amid heightened interest rates and banking volatility. But this surge of popularity and demand also brings new challenges that private debt managers must tackle if they want to reap the full benefits of this opportunity-rich era.
For our annual survey, Allvue surveyed GPs to learn about top private capital challenges, as well as managers’ plans for growth and diversification in the current market environment. Here are three key takeaways from our private debt segment of the data.
DOWNLOAD: DATA REPORT – Meeting the Market Moment
40% of private debt GPs named increased LP demand for additional allocation as a top challenge
As described, the current market moment has created an increased demand for private debt investments, and a significant portion of private debt managers are having trouble keeping pace with existing and prospective investor appetites. To compare this to other asset classes, only 8% of private equity managers and 14% of venture capital managers named the same top challenge. Per Preqin data, the private debt market has tripled since 2015 alone, and has seen additional steep growth in the last few years. As the market finds its footing in this new high-demand environment and figures out a balance that works long term, private debt GPs are likely to feel the strain.
27% of private debt managers name LP and regulator reporting as their biggest operating challenge
LPs are flocking to private debt – so much so that private debt managers are struggling to meet demand – and they’re bringing their growing data appetites with them. LPs have raised their expectations for some time when it comes to the reporting their receive from their GPs, but as private debt has transitioned from a small and steady asset class to a newly hot commodity, private debt managers may be getting more acquainted with this data-eager side of their larger investor base.
Only 13% of private debt managers use co-sourcing, and 63% have never heard of the strategy
Co-sourcing describes a back-office operations approach in which the GP purchases their own accounting and reporting software system to house their records within their own infrastructure and meanwhile engages a fund administrator to handle day-to-day accounting and reporting work on that chosen software system. Through this strategy, GPs don’t have to worry about lacking access to their accounting records while using a fund administrator, nor do they have to consider keeping shadow books and duplicating their fund administrator’s work. As private debt managers note that keeping up with investor reporting expectations is a key struggle, co-sourcing can help them tackle the issue by still allowing them to outsource tedious back-office work to expert external teams while having their data in close quarters to reference as LP requests come in.
Tackling operating challenges while riding the private debt wave
While private debt has often been the quieter, steadier asset class under the private capital umbrella, it’s experiencing its turn in the spotlight. The increased demand and attention may have private capital managers feeling like their operations and recurring challenges are now under a microscope.
But to take full advantage of this surge in interest, they’ll benefit most from making their own kind of investment in tackling their top fund operation challenges – and the right technology and software stack can make all the difference.
Allvue’s private debt suite of solutions, from portfolio management to compliance to accounting, can help GPs tackle these top struggles during a challenging marketing moment. To learn more, request a demo below or watch our software in action here.
