Beyond the Surface: Shifting Your Portfolio Management Focus

When managing a portfolio, easily attainable information often draws attention away from more relevant and critical data. Too often, the tendency is to fixate on accessible details, such as guarantor financials, while overlooking the deeper, potentially harder to quantify indicators of primary repayment risk. Since many loan agreements require the guarantor to submit quarterly financials, spreading them and writing a quick update on changes in financial condition feels productive. And yet, the guarantor is the secondary, or in some cases even the tertiary, source of repayment—so clearly this approach is falling short of the ideal for proactive portfolio management. It is analogous to the continuing efforts on the impact measurement side of CDFIs to find ways to go beyond housing units produced, jobs retained, and other quantifiable indicators to get to true, lasting community impact.

For this reason, we advocate for a paradigm shift—a deliberate emphasis on scrutinizing the primary source of repayment over the easier to analyze secondary or tertiary sources of repayment. Our approach prioritizes a holistic assessment, rooted in monitoring risks identified during the initial underwriting and identifying new risks that emerge during the loan term. While it demands a more thoughtful approach, this methodology yields indispensable insights crucial for proactive portfolio management. By steering focus towards the most urgent and relevant risk factors, our methodology equips lenders with the information they need to truly manage their portfolio proactively.
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This deeper, more nuanced approach to portfolio management capitalizes on the insights gained during the underwriting process and maintains a pulse on evolving conditions to keep a clear view on actual credit risks. Yes, we still do spread guarantor financials and monitor for changes in financial condition, but we put the spotlight on more immediate indicators of risk. This allows our clients to adapt strategies, proactively consider restructuring needs, mitigate threats, and ultimately safeguard the health and stability of their portfolios while also positioning their borrowers for success. By embracing the challenge of diving deeper into underwriting insights and continuously monitoring for emergent risks, community development lenders position themselves not just to react but to anticipate, ensuring a resilient portfolio and the best chance for success for borrowers and lenders alike.