Over the last decade, private credit has emerged as a viable lending option even when – and especially when – other public financing avenues are closed. Now direct lenders are adopting AI technology to solidify their upper hand in quickly deploying capital.
In prior periods of market dislocation – such as Covid and the Ukraine War downdraft in 2022 – direct lenders’ certainty to close gave it an edge. Now, amid tariff uncertainty, managers can quickly identify portfolio risks with exposure and even analyze the impact of tariffs on comparable credits.
The main driver for using AI is the speed at which managers can perform comprehensive due diligence. The technology is especially useful for analysis that might otherwise go undone. And while banks could also use AI, private credit is able to move faster to adopt and implement the technology, notes Mike Conover, CEO of Brightwave, an AI research assistant that generates financial analysis on any subject.
At a time of economic uncertainty and unknown implications of tariffs, AI is emerging as a “must-have” tool for managers to gauge exposure.
“It’s the topic du jour,” said Conover, noting there’s been “brisk demand” as credit managers seek ways to improve their investing workflows. “A lot more asset managers are getting off the sidelines.”
A key benefit of this technology is the deep research ability to pore over thousands of documents and distill findings through synthesis into camera-ready deliverables. The technology can provide exhaustive screening for transaction risk by comparing and contrasting historical documents.
Early adopters of the technology already are seeing efficiency gains. One private credit firm reduced its initial company screening process from five hours to five minutes and uncovered insights it would have previously missed, according to a source.
With AI, the “heavy lifting of manual prompt creation” is automated and data is analyzed in a quarter of the original time,” noted an asset manager who uses the technology.
“AI is not a replacement for judgment. It’s a starting point and can be a warning sign for deals that were previously killed,” Conover said.
Across the financial spectrum, there’s been a broad-based acceptance over the last three to six months that the technology can be “immensely impactful,” said Conover.
One of the key reasons private credit firms have been early adopters of AI is associated with the procurement, legal and compliance hurdles that are greater at an investment/traditional bank than at a private credit firm, Conover said.
In fact, more than 50% of alternative investment firms are actively integrating these tools into their jobs, according to a survey by fintech firm Dynamo Software.
Fundraising for AI
The growth of private credit markets has outpaced innovation and technological advancement, but firms like Brightwave have been increasingly raising venture funding for the development of these products.
In February, CredCore raised $16mn in Series A funding, and in October, Brightwave closed a $15mn Series A funding round. Siepe raised $30mn in a Series B funding last August for its technology’s use in the private credit and CLO markets.
“Our mission is to help credit managers better leverage their data to reduce operational risk and increase alpha,” Michael Pusateri, CEO and founder of Siepe, said in a statement.
CredCore’s capabilities cover the entire debt deal lifecycle, including pre-deal evaluation, during deal diligence and post-deal management. Customers can analyze, summarize and extract insights from deal-related documents in hours instead of days, significantly speeding up capital deployment.
As the private credit market is poised to continue its exponential growth, the technology will need to keep pace. Already, it has.
The market and AI language technology has developed and is much better than even a few years ago, noted Conover.
“The need to fact check has decreased a lot,” he said. “There are still some limitations, but that’s not a reason not to get involved.”
Krista Giovacco
krista.giovacco@levfininsights.com
+1 917 757 6399
