Legal AI company LEVERTON has announced that it has developed text extraction and analytics capabilities to look for debt risk and financial obligations within Non-Performing Loan (NPL) documents.
The move into this risk market area for the company will be conducted via a partnership with 8G Capital Partners, a private equity fund with a focus on property.
The aim is to help support both buyers and sellers of NPL portfolios to ‘harness the power of artificial intelligence to save considerable time and cost in conducting due diligence and closing transactions as well as post-acquisition portfolio management’.
Or put simply: NPL documents are long and complex – and full of often very serious risks. Funds, or others, buying and selling stacks of such debt need detailed insights into this, though some go ahead and buy without even really having a clear picture of what they are buying.
One could say this is a bit like how banks before the financial crisis in 2008 really needed insight into their masses of debt instruments for mortgages, such as CDOs, that they owned. But, back then they didn’t have the AI tech to analyse them. And so…well….they didn’t bother to wade through the data…and so….the debt markets triggered the biggest financial crisis since 1929.
(Note: if you’ve never read ‘The Big Short’ by Michael Lewis, then give it a look – the best book on the need for better analysis of debt agreements ever written. Artificial Lawyer has to wonder if the financial crisis would actually never have happened back then if every bank and insurance company had AI tech to constantly monitor risk in their debt/financial default coverage portfolios?)
And as LEVERTON says: ‘.. many NPL transactions are still being brought to the market without complete knowledge of what each portfolio entails.’
I.e. just like in 2008 – and the years before it – investors are buying and selling financial risk related to property without knowing how big the risk is.
Due to client demand LEVERTON and 8G Capital Partners will target their joint solution to businesses in Greece, Cyprus, Ukraine and Turkey in its initial phase. And these certainly seem like markets where a lot of financial risk may get swept under the carpet until it gets too late. Turkey is also currently seen as a major debt risk by some international investors.
Tassos Kotzanastassis, Founder, 8G Capital Partners, said: ‘When marketing a portfolio for sale, be it NPL or real estate, it’s all about disclosure. Equally, when managing such a portfolio, one needs to have complete and accurate information on their fingertips. There is tremendous value in a clean data tape.’
Richard Belgrave, Global Sales Director, LEVERTON, added: ‘We have been testing the possibility of entering this market and are excited to be able to bring our technology to the loan market. It’s traditionally a complex market where bid-ask spreads can remain unnecessarily wide, owing to the unavailability of quality data. With our market-leading data extraction platform, we can help businesses overcome these market failures.’