Even in markets where established data infrastructure is limited, such as syndicated loans, reliable sources of data that are indicative of a liquid security’s value are available through market data vendors and broker quotes. When evaluating illiquid securities like middle market or directly originated loans, the effort of data aggregation becomes much more difficult and is often assumed to be an exercise in futility. We would disagree.
The hunt for data on loans with limited liquidity begins in the same place as their liquid counterparts - searching for recent trades or broker quotes. Initial sourcing efforts, however, need to go beyond tapping bulge bracket trading desks for individual prices to include desks focused on middle market or illiquid securities and databasing all runs daily. Trading desk quotes are valuable secondary observations on the specific security being evaluated but also, as we will see later on, are integral in the creation of benchmarks and indices used in evaluating other securities as well. For this reason, we aggregate all trader runs rather than polling desks for individual quotes. Don’t pull an individual needle out of a haystack of valuable data points. Grab the whole stack and use it later.
Trade and origination data can also be difficult to find as this information is not public however this data can often be extrapolated from public filings such as BDC quarterly releases. By databasing BDC investment history and back-testing previous quarters, AdvantageData identifies newly entered positions and can back out primary or secondary market activity for a given security. To put it simply, when a new position is identified we have either a newly originated loan or an entry on the secondary market to use as a data point.
The above is an excerpt from AdvantageData's article Sourcing and Utilizing Market Data For The Valuation of Middle Market and Illiquid Loans by Alex Buzby, Director of Business Development at AdvantageData. The article was originally written for Voltaire VIVA.
Founded in 1997, AdvantageData (ADI) has been providing credit and credit derivative pricing, descriptive, financial and analytical information to the world’s top financial institutions for more than two decades. ADI’s workstation provides access to a powerful, comprehensive and global fixed-income platform. Thousands of sell and buy-side fixed-income analysts, traders, portfolio managers and risk management professionals rely on ADI every day to access quality data quickly and easily. Likewise, banks, brokers, mutual funds, hedge funds, asset managers and insurance companies utilize the AdvantageData feeds services for end of day valuation, research, and compliance functions.