Byline: Tom D’Agustino
Image credit: Gray’s Peak Capital
The global private credit market has grown significantly in recent years, hitting $2.1 trillion in assets and capital as of 2023. But while private credit investing can offer good returns, it comes with its fair share of risks and challenges.
These investments can be hard to sell or liquidate, so trying to turn a profit before the term ends can lead to losses. Furthermore, private credit borrowers often have shorter credit profiles and may have been denied traditional bank funding, increasing the potential risk of default.
However, emerging technologies and data science strategies can help to overcome these challenges. Scott Stevens, founder of Grays Peak Capital, leverages modern technology and data tools to provide better risk assessment, improve transparency, and strengthen investment decisions which can provide for improved returns and lower defaults.
Challenges and Risks in Private Credit Investment
Besides those mentioned above, there are other pitfalls that private credit investors need to watch out for.
Without a secondary market and limited comparable transactions, accurately valuing private credit investments can be challenging. For example, if an investor puts money into a loan for a small business, there might not be many similar loans for comparison. This makes it hard to assess its true value and potential losses, which adds an extra layer of uncertainty to investment decisions.
This ties into the transparency issue that many private credit investors face, where private arrangements often make it harder for investors to get detailed information about borrowers’ financial health.
Additionally, many private credit loans have floating rates, which means that the interest can change over time and place borrowers in a vulnerable position. After a sudden hike in interest rates, small businesses might struggle to keep up with higher payments, increasing the risk of default and potential losses for investors.
There are also changing conditions and potential economic downturns. While there still isn’t much consensus on whether a recession would help or hurt private credit investment, some experts believe that when banks pull out of investments during uncertain times, it creates an opportunity for private credit investors to step in and potentially generate outsized returns. However, others caution that the lack of clarity on how these investments would perform in a major recession makes it a risky venture.
Either way, these challenges mean that private credit investors need to do their homework, focus on managing risks, and work with seasoned investment managers to handle the complexities and reduce potential risks.
That’s where Grays Peak Capital comes in.
How Grays Peak Uses Emerging Tech to Tackle the Challenges of Private Credit Investments
Scott Stevens founded Grays Peak with these challenges in mind. Aware of the common pitfalls that come with private credit investing, his firm aims to spot new trends and promising opportunities in private credit ahead of the broader market. This allows his firm and investors to strategically invest in different types of credit while attempting to minimize the risks.
How? By leaning heavily on data science, analytics and emerging software technology to collect in-depth dynamic data on potential borrowers, automate risk assessment, and monitor borrowers’ financial health in real time.
“Our technologists and engineers keep a close eye on trends and track our portfolio to spot the patterns and disruptive changes in the market,” Stevens says. “Our data experts filter out irrelevant information, enabling us to invest intelligently across the entire ecosystem and capital structure.” This approach helps Gray’s Peak achieve the best risk-adjusted returns, no matter the economic conditions — especially in the private credit investment space.
As an example, Grays Peak leverages software, integration tools and APIs to pull in financial data and information from PDFs, scanned documents, payment gateways and ERP programs, then applies advanced machine learning algorithms to analyze these large datasets to find patterns and predict risks.
For private credit investment, these tools help assess borrower credit quality, monitor any breaches in loan agreements, and evaluate the overall risk of the investment portfolio. By using these insights, investors can make more informed decisions and manage their risks better.
But Stevens makes it clear that this strategy isn’t solely based on investment prowess. “After working at some of the largest global investment firms, like Coatue Capital and Point72,” he says, “we built our firm on key lessons from our diverse experience in investing and technology platforms to continually improve our process.”
By combining decades of experience with unconventional digital agility, Grays Peak puts innovation and collaboration at the forefront of its private credit investments, keeping the firm ahead of market trends and maximizing returns for its clients.
Make Informed Private Credit Investments with Tech-Driven Insights
Private credit investment, while lucrative, can prove troublesome without a strategic and adaptive approach — but that’s exactly what Grays Peak offers.
Scott Stevens’ global investment firm approaches each investment with a stockpile of structured and unstructured data about potential borrowers’ financial health, while monitoring each step of the investment relationship to keep risks at bay.
To learn more about this effective combination of innovation, collaboration, and experience, visit Grays Peak online and follow Scott Stevens on LinkedIn.