Alternative Investment Funds (AIF) Scorecard
Confidently Score an AIF’s Creditworthiness
As Alternative Investment Funds (AIFs) mature, greater transparency is needed. This is especially the case given the trend for some funds to access loans from banks and other financial institutions to boost their leverage.
This increased leverage within the AIF universe poses potential credit risks to various counterparties that provide fund financing. As a result, it is important to effectively score the credit risk of an AIF.
The Scorecard Structure and How it Works
The AIF Scorecard provides a granular and transparent framework for assessing credit risk. It uses measures that can affect the likelihood of default, and these are sensitive to changes in an AIF’s market conditions. They include:
- Stressed leverage
- Risk position
- Funding and liquidity
- Jurisdiction risk
- Fund track record and investment performance
- Risk management
- Transparency and complexity
AIF Scorecard Key Features and Benefits
Consolidated PD Scoring for Multiple Fund Types, Debt Instruments, and Bank Facilities
An effective framework that focuses on the key factors most predictive of default risk.
Automated Jurisdictional Risk Added to the Analysis
Addresses the risks arising from operating in geographies with varying payment cultures, levels of governance, and transparency that could adversely affect an AIF’s creditworthiness.
Analytical Transparency of the Methodology That Explains the Scorecard Framework, Including Granular Scoring Criteria
The AIF Scorecard is validated annually, and full technical documentation describes the analytical/statistical processes and data used in its construction; this helps to enhance the consistency and transparency of internal rating systems.
AIF Scorecard’s Business Applications
Consistently measure credit risks across AIFs that have different strategies and structures
For institutions that rely on internal rating systems, the AIF Scorecard helps users meet regulatory requirements regarding these systems and model risk management
The AIF Scorecard provides a powerful capability for organizations to consistently measure credit risks across AIFs that have different strategies and structures, including:
- Hedge Funds
- Private Equity Funds
- Fund of Funds (FOFs)
- Fund-like Entities
- Transparency and Complexity
Insights
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S&P Global Market Intelligence Credit Assessment Scorecards provide a valuable framework for assessing credit risk, including access to benchmarks and attribute-driven scoring guidelines. The AIF Scorecard provides an easy-to-use, intuitive structure for financial institutions to evaluate the creditworthiness of funds, and also supports an assessment of the credit risk of an AIF’s debt instruments.
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