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Charles Sayac, Managing Director Continental Europe, NeoXam explores an overlooked but increasingly critical consequence of the industry-wide consolidation expected in Private Credit over the next five years.
A bout of consolidation unseen in the sector’s history may be on the cards for the Private Credit space – one that threatens to unearth a host of complex data challenges for the unprepared.
A recent Carne Group report revealed almost all (96%) of Private Debt Managers expect industry-wide consolidation over the coming five years, with nearly three-quarters expecting M&A activity to be significant. The news follows BlackRock’s acquisition of global alternative Credit Investment Manager HPS Investment Partners in late 2024, while, across the pond, both Franklin Templeton and Clearlake have branched into the European Private Credit Market by acquiring Apera and MV Credit, respectively.
Several structural factors are driving the trend, one of the most significant being the degree of investor demand for compelling Alternative Assets. Not only have Private Markets become increasingly sought after among retail investors in recent months, but they are also gaining traction with thematic investors, who view certain areas of Private Credit as a savvy way to tap into emerging trends, technologies, and sectors.
It is hardly surprising large Investment Managers are opting to acquire Private Credit firms in this context. After all, a successful takeover can offer speedy access to the specialist expertise and scale required to compete in what is an increasingly competitive and complex market. That’s not to say the strategy is without its risks, though.
Concerns around cultural integration are often cited when a merger is planned, as are potential conflicts of interest between investment strategies and headaches around the number of additional regulatory hoops through which a firm must jump. Yet, what is typically overlooked is the extensive groundwork required to ensure the data infrastructure underpinning the business’ Front, Middle and Back-Office operations is equipped to handle the complexity of a merger.
One of the trickiest challenges centers on integration. When firms merge, they encounter the daunting, albeit essential task of meshing vastly disparate data systems, sources and processes. Customer Relationship Management, Investment Portfolio oversight, and Performance Reporting are just a few of the extremely data-dependent processes that must be housed under a new roof.
From a Data Management perspective, this can be fraught with teething problems. Data silos – whereby key data is stored and managed separately across different departments or applications – often hamstring merging firms, as applications fail to communicate and share data seamlessly. Breaking down these silos will be crucial for merging firms if they are to create a unified view of financial performance and client information – a cornerstone of any effective Asset Management strategy.
This is particularly important if the firm being acquired deals in more opaque and illiquid assets like Private Credit, which depend on processing a vastly different set of data. Unlike public equities, which benefit from standardized reporting and frequent pricing data, credit investments tend to involve bespoke loan agreements, irregular cash flows, and complex covenants. Much closer scrutiny of the data from risk and compliance teams is necessary, as well as more manual data inputs. If the acquiring firm’s systems aren’t designed to accommodate these nuances – or if integration between platforms isn’t seamless – the result can be inconsistent reporting, delayed valuation calculations, or even failure to comply with regulators.
With a tidal wave of takeovers set to sweep through the Private Credit space over the coming year or so, the firms best equipped to deal with the data dilemma inherent in mergers will be those that prioritize investing in scalable, interoperable data infrastructure. Those that don’t could find they are treading water when operational teething problems flood in.
