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20 May 2020       SBAI

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The Standards Board for Alternative Investments (SBAI) has published three memos on alternative credit fund management focusing on fund structuring considerations, valuation and conflicts of interest. The memos provide guidance to managers and investors on these topics and a framework of questions investors may wish to ask managers when conducting operational due diligence. 

The memos were developed by the Standards Board’s Alternative Credit Working Group which consists of 45 leading institutional investors and managers - among which is Albourne Partners.

The Fund Structuring Memo focusses on the 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. Ryan Teal, Partner and Head of Operational Due Diligence Americas at Albourne Partners and member of the working group said: “Fair Value matters to institutional investors, to inform their risk management and investment decision making, satisfy their accounting requirements, and ensure fair treatment of ultimate beneficiaries.”   

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 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. In addition to the SBAI’s work in Alternative Credit, the SBAI is currently running active working groups focussing on the following areas: Governance, Responsible Investments, Insurance Linked Funds, Factor Investing, Standard Investor Profile Template, as well as regional focus groups (China, Japan).