With investors demanding more clarity on valuations and risk, firms like StepStone, FTSE Russell and Houlihan Lokey are launching a new wave of indices and data platforms, making private debt more investable.
One of the biggest criticisms of private credit is its lack of transparency. Unlike public debt markets, deal terms, valuations and borrower performance data are not publicly disclosed.
This opacity has drawn criticism from observers of the asset class and put off some investors from committing to the private debt market, with this becoming even more critical at a time when the industry is facing increased scrutiny.
However, in recent weeks, a number of firms have launched initiatives to address gaps around self-marked valuations and the lack of a standardised dataset across funds.
Investment firm StepStone and index provider FTSE Russell have introduced the world’s first global fund-level daily private market indices, while Morningstar and PitchBook have partnered to launch a suite of indices for evergreen private market funds. Both aim to provide investors with more reliable benchmarks for measuring non-traded strategies.
A real-time view
Tyler Johnson, partner and chief technology officer at StepStone, explained that the FTSE StepStone Global Private Market Indices evolved from the increasing demand for, and accessibility of, private markets, allowing investors to gain a real-time view of alternative asset performance.
“Sometimes the reporting lag is so great that investors don’t find out what’s really happening until two to four months after the period ends,” Johnson told Alternative Credit Investor. “This tool could help give investors a more real-time view of an asset class that has historically been very delayed.”
The FTSE StepStone Global Private Market Indices covers private credit, real estate, private equity, buyout and private infrastructure, and offers customisation options.
Currently, within private credit, some fund managers rely on self-marked valuations, creating potential conflicts of interest, and there is still no standardised dataset across funds. The result is a market that remains largely inaccessible to objective comparison.
“We see this [the indices] as a more apples-to-apples benchmark,” Johnson said. “Even with customisation, it still enables fair comparisons.”
Read more: Private credit BDC index launches
Risk narrative
The lack of transparency around private markets, specifically private credit, also feeds into the associated risk of investing in the asset class, as high yields and low transparency can mask vulnerabilities.
Gerald Toledano, global head of equity and multi-assets at FTSE Russell, said the benchmarks could support lending, collateral management and risk assessments.
“Having a well-tested model that estimates valuations will allow for greater adoption of daily net asset value lending and collateral management,” Toledano told Alternative Credit Investor. “For risk teams, it provides a daily snapshot of fund values, making regulatory checks easier.”
FTSE and StepStone also offer individual indices focused on private equity, buyout and private infrastructure.
“Right now, there isn’t a private credit-only or real estate-only index,” Johnson noted. “But our goal is to be a comprehensive provider, and we intend to expand the suite of indices over time.”
Looking ahead, Toledano said the benchmarks could help address illiquidity by supporting tradable or semi-liquid products backed by private loans.
“When packaged into products such as exchange-traded funds with clear pricing, liquidity improves,” he explained. “Over time, a centralised benchmark could help market participants use a common model for pricing and risk, enriching the entire ecosystem.”
Databanks
However, indices are not the only way the sector is tackling low levels of transparency in private credit. Global investment bank Houlihan Lokey announced last week the launch of the Private Credit DataBank, a dataset and analytics platform delivering structured, loan-level insights into the private credit market.
The DataBank draws on observations from more than 60,000 loan valuations. It reflects the full spectrum of the direct lending market, ranging from borrowers with less than $20m (£15.2m) to those with more than $100m in EBITDA, across industries, geographies and capital structures, and includes both senior and junior debt.
“We built the Houlihan Lokey Private Credit DataBank to give clients access to actual loan-level data, not just anecdotes or fund-level data, to understand where the market is heading,” said Chris Cessna, a director who helps lead the private credit valuation practice at Houlihan Lokey, on the launch of the fund.
As scrutiny of private credit intensifies, initiatives like these should help bring the asset class more in line with the openness of public markets and, in turn, increase investor confidence.
