The Unique Nature of Direct Lending Funds

By: Alex Tarantino


Alternative finance is growing rapidly in Europe and is fast becoming an established investment strategy. Loans are a unique asset class that must be treated quite separately from bonds. This poses new challenges for firms entering the direct lending market.

Bespoke credit agreements involve complex terms and structures in opaque and private markets. Loan accounting, including cost amortization and payment in kind (PIK) accounting, require new operational processes for firms that have not traditionally engaged such strategies. There are significant complexities involved in managing both the waterfall structure and the characteristics of the direct lending asset class at the same time. Firms need to process revolver/multi-currency facilities, track funded/unfunded contracts, LCs, PIK payments (as per the latest market conventions), and deploy manual overrides regarding their treatment prior to or after settlement date.

Firms also need to consider how to manage the documentation, compliance, and governance of loans, from origination to administration. Loans behave differently from most other financial instruments; investment firms need to accurately reflect when payments are due and when the borrower should provide financial information to the lenders. Clients must have access to their activity across all stages of the loan lifecycle, including notice of upcoming events and details of historical loan activity.

A recent SS&C whitepaper, “Key Considerations in Selecting an Administrator for your Direct Lending Funds”, discusses how engaging a specialized service provider to structure and administer direct lending funds, and to provide regulatory and tax services, offers a fast route to market for these vehicles. It also provides a check list firms should consider when choosing such a provider.

SS&C Loan Services offers a comprehensive suite of technology and outsourced services across the entire loan spectrum, including accounting, reserving, credit risk analysis, middle- and back-office administration, agency or shadow servicing of commercial and residential mortgages, and bank loans. SS&C Loan Services comprises three core areas that cover bank loans, commercial loans, and mortgages. To find out more, please contact

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