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Portfolio monitoring workflow: A credit manager’s perspective
21 May 2020
An Inside Look at the Technological Evolution of a Top
Tier Private Credit Firm
Collecting, synthesizing and reporting financial and performance
data has always been a critical component of the portfolio
monitoring process. With information changing rapidly in this fluid
environment amid the global COVID-19 pandemic, leveraging
technology, services and a central data repository has proven to be
crucial.
Honestly, how else is one team going to collect, scrutinize,
standardize and report on the COVID-19 impact on a portfolio in a
timely manner? Or get our arms around liquidity? Or assess the
impact on revenue and EBITDA at our borrowers and flag potential
financial, reporting and payment defaults? And do all this on top
of an existing workload plus the inevitable restructures,
amendments and new deals, while trying not to work 24/7?
The Manual Process
Back when I started my career as an asset manager, we collected
and spread financial data the old-fashioned way - manually. We
received reporting via emails with pdfs attached, which were shared
to a structured folder to facilitate easy navigation by all team
members. We set email calendar reminders to track reporting due
dates and prompt the immediate chase of a late report, if needed.
This was sometimes the first sign there was a problem.
My team was responsible for reviewing the borrower reporting,
keying in the relevant financial performance data, calculating
KPIs, performing variance analysis, providing a qualitative
write-up and standardizing all of this into a template for a
monthly or quarterly "one-pager" or "tear-sheet" review. We also
used this reported financial information, together with the most
recent market data, to perform valuations each month. It was fast
paced, exciting and a substantial amount of work to complete in a
short period of time to meet monthly accounting deadlines and
strike NAV.
Calendar quarter ends were particularly busy with the release of
10Qs for comparable public company benchmarking, updating valuation
reports and coordinating with external analysts to share
information and obtain positive assurance from external valuation
providers. Data accuracy and thoughtful analysis of information
from various sources were critical to succinctly consolidate the
updated information for the investment team to review and make
informed decisions.
Furthermore, gathering and applying real-time market data was
central to our valuations and reporting because identifying the
comparable public companies and analyzing how their key financial
ratios change period over period would affect our risk rating and
valuation conclusions. For example, assessing the expansion or
contraction of the fundamentals of a specific industry and
determining the relevant impact on a specific borrower takes time
for thoughtful analysis and discussion. Generally, the process
requires preparation of a draft valuation that includes information
review, data entry, adjusting financial models and, finally,
explaining the thought behind the conclusion to multiple
stakeholders (i.e. portfolio managers, valuation committee, etc.),
taking into account market conditions, economic factors, company
specific metrics, industry metrics, etc. It is a lot of data to
gather, synthesize, add into a memo and deliver to
stakeholders.
The Automated Workflow
Fast forward to the use of technology to improve and streamline
this whole process. Imagine this: borrower-reported
financials delivered directly into iLEVEL, our portfolio monitoring
platform - with NO DATA ENTRY REQUIRED; an Excel plug-in
to automatically update tear sheets, one pagers and valuation
models. Without the manual data entry, I have completed these
updates in record time and can now spend time on research,
analysis, restructures, underwriting new deals - value added,
stimulating work! And everyone benefits because my team delivers
our reports in a timelier manner. The iLEVEL solution is so well
thought out that it enables my team to scale, while still being
solid on our analysis (maybe even more so now because we no longer
need to review constantly for fat-fingering into a spreadsheet). It
is as if we wrote the code or designed it ourselves. Let me break
it down…
First, once a borrower sends in their required reporting
package, we pass the information to a trusted managed data service
to put into a database and present the exact information that the
client reports into iLEVEL. Rather than manually transferring the
information from a pdf to my spreadsheet model, my review process
begins once my borrower's financial statements are in the
system.
Second, there is an Excel plug in. Genius! Once I review the
information (i.e. variance analysis, compare to prior year, plan,
prior period, review updated KPIs etc.), I simply go to the
spreadsheet and refresh the "as of date" to tell the spreadsheet to
populate my templates with the updated data and let the magic
happen. Then, given the flexibility of the spreadsheet, I make
notes and adjustments based on additional analysis / research that
I have performed and finalize my recurring reports with ease and
efficiency.
Third, iLEVEL connects to our accounting platform so I no
longer wait for the back office to send me a spreadsheet of my par
balances and any accruals. Instead, the information is
automatically updated in our software platform and connected to a
spreadsheet with a simple formula via the plug-in. If I want to
come in at 5am and complete my reports so I look like an
overachiever to my PM who has told me he prefers to have the
reports as early in the day as possible, I'm not waiting on a
report of this data from the back office - it is literally
available at my fingertips!
And fourth, once all the updated information is in iLEVEL, it
is a reliable database with pre-set and customizable dashboards so
that anyone across our organization with permissioned access can
drill into a borrower, review performance across a portfolio and
look at time series analysis from a computer or mobile device.
The time savings and process improvements with portfolio
monitoring technology solutions pave the way for more value-add,
productive analysis powered by accurate, transparent and thoughtful
reports for our leaders to make well-informed decisions,
expediently.
In today's environment where the COVID-19 pandemic is hitting
the global main streets, time is of the essence in many ways for
critical decision-making on our existing portfolio and on new deals
that will likely produce out-weighted returns for our investors
given the market dislocation. Without the benefit of portfolio
monitoring software to keep everyone up to date, our firm would be
at a disadvantage to our competitors.
To learn more about how your firm can simplify workflows and
increase efficiency, visit our website
or email PCMGlobalSales@ihsmarkit.com.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
