How OWLS is Attacking the Inefficiencies in Whole Loan Operations

Overview

Whole loans present a compelling investment opportunity for portfolio managers due to the potential for diversification, stable cash flows, yield uplift, and favorable capital charges. However, this asset class brings inherent, complex operational and data challenges which cannot be overlooked.

Key Challenges

• Operational Complexity: The volume of loans, coupled with diverse, unstandardized data sources and lack of public information, can quickly lead to complex operational and reporting challenges.
• Data Management: The messy and inconsistent nature of loan data can hinder portfolio analysis and decision-making as well as become a massive strain on Operation and IT teams.
• Lifecycle Management: Tracking and managing the various stages of a loan’s lifecycle, from origination to servicing and potential default, requires significant effort and attention.

If provided the necessary resources, in-house Operations and IT teams could manage this well but does adding headcount and more complex systems make sense? Does this approach best position these teams to add maximum value to the company? Is chasing servicers a good use of their time?

The Aplos OWLS Solution

To effectively address these challenges and maximize the value of whole loan investments and client sta , Aplos o ers a managed service that leverages propriety technology and operational expertise. By streamlining processes, automating tasks, and centralizing data management, Aplos can provide clients:

• Clean Data: Cleansed, validated, and normalized loan data delivered in a consistent and timely fashion. This is paramount and an enormous effort.
• Operational Efficiency: Time to focus on ensuring clean data is presented correctly within their own environments. No need to build extensive checks and a patch work of fixes for bad data.
• Optimize Portfolio Management: Deeper confidence in the decision-making process knowing the accuracy of the data is backed by asset class specialists.
• Free Up Resources: Enable teams across the firm to focus on higher-value activities to drive growth and innovation.

By embracing this comprehensive solution, clients can unlock the full potential of whole loan investments, expand to more complex varieties and be free from operational and data burdens.

Below is a high-level overview of the data flows for clients, Aplos and counterparties.

Engagement Model

Scenario 1: Turnkey Operations and Accounting

• Current Book: Aplos team loads positions into OWLS and engages with counterparties for loan servicing. If historical information is available, Aplos can rebuild loan history to support reporting and performance calculations.
• Purchase Flow: Aplos team engages with counterparties to set up feeds for new loans and can help in the funding process if needed. We can direct the servicing to Aplos preferred servicers or establish new connections with existing client servicers.
• Downstream: Aplos team interfaces with the accounting and operational teams to establish connectivity and create relationships for ongoing support. All data is fed back to OWLS for a complete reconciliation. The Aplos team resolves all breaks with counterparties and client systems.
• OWLS System Access: Not needed – Feed client desired reporting and/or provide data access through APIs, Power BI, Snowflake, BigQuery, ect.

Scenario 2: Client access to reporting and analytics

• In this scenario, the Aplos team would continue to do everything listed in Scenario 1 but provide client access to OWLS. This will allow client users to run reports and review data without needing to curate it.
• Clients could also start to purchase loans and engage in any part of the process with the complete support of the Aplos Team.

Scenario 3: Client flies the OWL!

• A well-staffed and sophisticated client can manage the system and processes end-to-end. In this scenario, Aplos supports the client in any part of the process, but the processes are owned by the client.
• The Aplos team will work with the client to customize reporting and discuss system enhancements which will better support their needs.

Current Clients: Scenarios 1 and 3.

• Ellington Management Group - This founding client fits into Scenario 3 and the Aplos team supports them from a technical perspective. They currently manage over 1 million loans with a fraction of the sta seen at other managers.
• Insurance Companies - With the heavy operational lift, these companies have fallen into Scenario 1 but as they become familiar with the process, we believe providing system access and transparency will be a helpful next step.

Technology Stack

• Microsoft SQL Server 2022 hosted in Azure with modern webservices including integrated authentication with Microsoft SSO.

Data and Security

• Aplos takes great care in protecting client data by encrypting sensitive PII data in the database and storing all files encrypted at rest.
• The system has role-based entitlements to provide users access to only the information and functionality they need.
• Scoping SOC 1&2 - Type 2s to be issued at the end of 2025.

Conclusion

• Operationally, this is a very complicated asset class and unfortunately this is sometimes overlooked until it is too late. Aplos’s mission is to simplify the operational management of whole loans, allowing managers to focus on value-additive priorities, and not spend time patching systems and scrubbing data.
• Our team is dedicated to supporting clients to ensure operational success with whole loans. We o er comprehensive assistance, including ad-hoc engineering solutions for more complex challenges.
• Aplos and OWLS have been carefully incubated at one of the most respected asset managers in the world and are now ready to help clients reap the rewards of the asset class without the operational burden.