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Institutional Grade Portfolio Management

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Shaye Wali

December 11, 2023

I recently spoke at the AAPL conference, sharing steps private lenders can take to land institutional investors like endowments, hedge funds, and insurance companies. To attract and manage capital from institutional investors, lenders must be able to;

1) Deliver consistent risk-adjusted returns

2) Provide accurate and timely reporting, and

3) Deploy capital at scale 

The cornerstone enabling these elements is technology, which plays a pivotal role in streamlining operations and enhancing performance.

Generating steady, risk-adjusted returns is critical for attracting institutional capital. Risk-adjusted returns provide a nuanced picture of an investment’s performance by accounting for the level of risk involved in achieving those returns. This approach ensures that returns are aligned with the investor’s risk tolerance and overall investment strategy. When assessing a lender’s track record, institutional investors will need the data points required to accurately calculate risk-adjusted returns.

Transparency is paramount in maintaining investor trust and meeting regulatory requirements. Reporting tools that produce accurate and reliable data are essential for real-time monitoring and reporting of portfolio performance. These tools should provide comprehensive insights into the portfolio’s health, including borrower payment history, construction advances, risk metrics, and other data points. Platforms like Baseline enable secure, real-time access to loan data, ensuring that lenders and their investors are always informed and can meet their reporting obligations.

The ability to scale – to deploy large amounts of capital while achieving desired returns and managing risk exposure – demands robust technology infrastructure capable of handling high transaction volumes and moving them through the pipeline efficiently. Automation of origination functions, such as document collection and pricing, allows private lenders to focus on marketing and relationship building.

Effectively attracting and managing capital from institutional investors requires private lenders to not only focus on delivering consistent risk-adjusted returns, but also maintaining transparency and operating at scale. Private lenders who embrace and deploy technology early on will be best positioned to meet the needs of sophisticated institutional investors. Having the right infrastructure in place is not just a matter of operational convenience, it is a fundamental requirement.

Below is a conversation I had with Wesley Carpenter, Managing Partner of Stormfield Capital on this very topic.

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