We recently sat down with some of our Corporate Trust loans and loan-backed securities experts for a wide-ranging discussion about loan transparency and LoanArc, BNY Mellon’s secure, web-based loan reporting solution. In this first of two parts, the team talks about the need for transparency in managing loan portfolios and client demands for data.
When you look at the overall industry and what you're seeing, why has the focus on transparency in managing loan portfolios increased?
Medita Vucic, Group Manager for U.S. Financial Institutions: I would not say the need for transparency say has increased, but it does continue to be front and center. The evolution of transparency in the market really came from the financial crisis and the need for market participants to manage performance risk and compliance within more complex products. These market participants include portfolio managers, investors, compliance, and risk, and in some cases, regulators.
The drive for transparency will also continue to create more operational efficiency as the market is squeezed on the expense side. I expect the need to manage these portfolios in a more dynamic way will increase the expectations that the end investors have.
Sonal Patel, Group Head for the U.S. Americas Strategic Client Group: Market data is very important in terms of the way collateral managers and portfolio managers are looking at the information. Transparency is not just what the service providers are providing them, but also internally they're challenged with how that information is being affected for them. So in terms of the regulatory landscape and what is being required of the market, the information we give clients today is going to evolve. We're going to see a much greater level of scrutiny around data transparency and the information that's being requested over time.
What are you seeing most frequently in terms of the demand side for this type of data and information within the loan portfolio?
Bobby Weil, Senior Relationship Manager for U.S. Financial Institutions: First and foremost clients want data regardless of type to be accurate because without accuracy data has no inherent value.
Second, with regard to specific types of data, it depends on each individual client and its needs in the CLO space. For example, there is a need for asset and position reporting along with cash reporting on a daily basis, and that data creates a foundation for a collateral manager's actions such as buys and sells, reinvestments, distribution of income received to beneficial owners. When you factor in compliance or covenant monitoring such as overcollateralization and concentration requirements under indenture, it really underscores the need for accuracy and timely access to the client's data.
Keeping that in mind, this is why BNY Mellon has focused so much on technology in the last few years, namely to drive forward our mission to free the data, as it were. The data is the client's data and we need to make sure that we are developing structures and technologies that help us to deliver it to them as quickly and accurately as possible in the most efficient and customizable way as possible based on each client's individual needs.
How did these particular client needs feed into the genesis of LoanArc, and how does the product really address the voice of the customer?
Zeeshan Ahmed, Product Manager: In today's environment, it's all about getting access to data faster and on-demand. Our clients rely on us heavily to provide up-to-date data because it's important for them to be able to make decisions faster. Our clients also expect us to be in front of the cutting-edge technology offerings. That is the way forward as it relates to investment operations.
LoanArc allows our clients to access their data quickly. For performance analytics, as Bobby mentioned, data is key. We are housing our clients’ clients' data, and for them to have access to it has become a very critical component of how they conduct their business.
Vucic: The only thing is to add to that is that there are different needs and objectives depending on who is using the data. The pure focus of why we're unlocking the data is, to borrow a statement from Bobby, is that it's critical for decision makers to understand the performance of the assets within the portfolios. Being able to deliver critical alerts, deal milestones, pending trades, and unexpected changes to their portfolio is going to help them dynamically manage these portfolios to drive towards the performance and results that folks expect.
Weil: To build on what all of us have said so far, our clients have clients of their own. The ability to access this data transparently in a very quick, efficient, and customizable way is essential for them to be able to meet the demands of their own client base. So, one of our primary missions is to make sure that we provide the necessary tools to collateral managers, fund administrators, and other parties as needed to help them be able to meet their own client's needs and demands as a result of having that transparent, quick, and efficient access to their data.
Be sure to read part two of the discussion: Loan Portfolios: Bringing Transparency to Your Organization with LoanArc