Alternative Credit

Alternative credit investing has increased significantly in relevance in recent years due to the reduction in bank lending following the financial crisis. This is a welcome development, as it provides more investment choices for investors and a broader range of funding sources for users of capital (e.g. corporates, etc.). To accompany this important development, the SBAI set up an Alternative Credit Working Group in 2019, focusing on industry practices and standards and providing guidance to institutional investors. The Working Group has published three memos on alternative credit fund management:

• The Fund Structuring Memo focuses on key considerations for the two most common fund models employed by alternative credit managers: the closed-ended private equity model and the open-ended hedge fund model.
• The Valuation Memo highlights the key features of a robust valuation framework and illustrates the fair value process for direct loans.
• The Conflicts of Interest Memo identifies the specific conflicts of interest that can arise in funds investing in alternative credit, including in situations where different funds invest in different parts of a company’s capital structure and where one fund refinances a loan held by another fund.

The memos provide guidance to managers and investors and a framework of questions investors may wish to ask managers when conducting operational due diligence.

The SBAI Alternative Credit Working Group will continue to review other areas of relevance in alternative credit, including investor disclosure and applicability of Responsible Investment considerations.

Press release (05-2020)