Automation and Private Credit Expansion

Scaling Ambition, Not Headcount

Harnessing Technology for Efficient Investment Evolution

Executive Summary

This case study details the transformative engagement between Three Horizons Capital and a US_PPF—an anonymized public pension fund with approximately $450 billion in assets. Faced with a critical operational challenge reflective of current industry trends. Historically, an eight-person team managed a U.S. Aggregate bond mandate with discipline and expertise. However, as market dynamics evolved—fuelled by increased allocations to alternatives and the pressing need to enhance diversification—US_PPF was tasked with integrating private credit co-investments into its investment strategy.

This mandate came at a time when global trends, documented by the Pew Charitable Trusts and echoed in research from the Journal of Finance, indicate that institutional investors are being pressed to “do more with less.” In this context, private credit presents substantial due diligence, specialized underwriting, and intensive monitoring demands.

The challenge was two-fold:

1. Maintain the integrity of the core fixed income portfolio while

2. Simultaneously expand into a higher-yield, alternative asset class

- All without increasing headcount or compromising operational excellence.

Three Horizons Capital delivered by deploying a factor-based custom index integrated with advanced automation via BlackRock Aladdin. This approach not only maintained a tracking error of less than 10 basis points but also enabled the reallocation of critical human capital toward private credit origination and underwriting.

Completed in under three months, this transformation underscores that technological innovation, rigorous governance, and targeted talent reallocation allow institutional investors to do more with the same resources while maintaining robust risk control and operational efficiency.

The insights presented here draw on extensive research and industry benchmarks from sources such as the Journal of Portfolio Management, the Journal of Finance, and the CFA Institute, reaffirming that evolutionary change—grounded in proven technology and proven practitioner expertise—is the key to success in today's competitive landscape.

Introduction: About Three Horizons Capital

Three Horizons Capital is not a conventional consultant or another asset manager. We are practitioners—people who have built, led, and transformed investment businesses from the inside. Our guidance is rooted in lived experience, not theory.

We partner with clients, working shoulder to shoulder to address the realities of growth. Our focus is unwavering: we help organizations unlock and drive revenue, not through generic advice, but through a process that is adaptive, cost-conscious, and always tailored to the client’s unique environment.

Our core pillars are:

• Sales Enablement and Client Onboarding (Distribution): Leveraging advanced data and AI-driven insights to help clients anticipate investor needs and maximize distribution impact.

• Investment Management: Designing and implementing scalable, cost-effective portfolio solutions, from customized indexing to automated reporting.

• Product Design (& Operating Platform Development): Identifying market gaps and designing products that meet real investor needs, using a collaborative, data-driven, and risk-minimizing “sandbox” approach.

We embed within client teams, guiding them from minimum viable product to scalable success, always with transparency, collaboration, and a deep respect for each client’s journey.

The Three Horizons Capital Approach & Mandate

Three Horizons Capital’s approach was grounded in rigorous analysis, stakeholder engagement, and a commitment to building a scalable, sustainable solution. 

1. Customized Indexing and Automation

To mitigate the pressures of an expanding mandate, our solution centred on creating a factor-based custom index that mirrored the risk-return characteristics of the traditional U.S. Aggregate bond mandate. Designed to achieve a tracking error of less than 10 basis points, this tailor-made index was seamlessly integrated with BlackRock Aladdin for automated portfolio monitoring and trade generation.

This approach is not merely about resource reallocation—it reflects a strategic alignment of operational precision and market innovation. The Journal of Portfolio Management and insights from institutions like Northern Trust validate that carefully calibrated indexing solutions help maintain tight control over duration, credit quality, and sector exposures, even in volatile conditions. By harnessing automation, we reduced manual intervention, minimized human error, and secured operational scalability, all crucial for managing complex fixed income exposures in real time.

2. Talent Reallocation

With the enhanced automation in place managing the core bond mandate, we reallocated five seasoned credit analysts to focus exclusively on the rapidly growing private credit opportunity. Simultaneously, our Treasury and Mortgage-Backed Securities (MBS) analysts assumed new responsibilities as portfolio managers for the now-indexed core mandate.

This deliberate reassignment of talent illustrates a broader industry trend—technology-enabled transformation permits investment teams to operate at peak efficiency without enlarging headcount. Research from the CFA Institute and case studies referenced in the Journal of Finance indicate that strategic talent reallocation not only enhances operational effectiveness but also nurtures a culture of continuous learning and agility. By shifting our human capital to areas with greater alpha generation potential, we retained our institutional knowledge while embracing innovation.

3. Governance and Communication

Any transformational process requires a robust governance framework and clear, transparent communication. To this end, we developed internal education tools that articulated the new investment process, enabling every member of the team to understand the rationale behind the automation and reallocation efforts. We also instituted a rigorous monitoring and risk oversight framework that covered both the bespoke indexed portfolio and the newly emerging private credit book.

This dual focus on governance and communication is vital in ensuring that the operational transition is both smooth and sustainable. Studies published in the Journal of Portfolio Management and analyses by the CFA Institute stress that effective risk oversight and stakeholder education are indispensable when integrating technological innovations into traditional investment processes. Our approach ensured real-time visibility of risk exposures and invested in building internal competency—key factors to sustaining long-term operational excellence.

Strategic Outcomes - Results

Metric	Outcome
Headcount Growth	0 (fully achieved through internal reallocation)
Tracking Error	< 10 basis points
Time-to-Implementation	Under 3 months (pilot and full-scale rollout)
Private Credit Capacity	5 analysts reassigned exclusively
Core Bond Management	Fully automated with precise index tracking

From a practitioner’s standpoint, these results are highly instructive. Delivering a headcount-neutral operational transformation while achieving industry-leading precision (tracking error < 10 basis points) underscores our capability to derive significant efficiencies through automation.

Completing a comprehensive rollout in less than three months exemplifies our agile operating model and our ability to rapidly implement transformative changes. The reallocation of specialized credit analysts provided operational breathing room to explore new high-yield opportunities without jeopardizing the core portfolio.

In sum, the successful automation of the core bond mandate allowed our team to remain nimble and focused on strategic asset deployment—an outcome that aligns with the evolving best practices in institutional investment as recognized by the CFA Institute and leading asset managers.

Conclusion - Strategic Fit with Three Horizons Capital Philosophy

Three Horizons Capital’s approach is built on an unwavering commitment to evolutionary change—measured, research-driven, and supremely practitioner-oriented. Our engagement with US_PPF demonstrates this philosophy in action through a “sandbox” approach: a pilot implementation of custom indexing that allowed for real-time learning and minimal disruption, paving the way for a full-scale deployment.

Our commitment to front-office empowerment is evident in our strategy, which simultaneously freed vital human capital for alpha-generating private credit work and maintained robust control over the traditional fixed income mandate. This cost-effective transformation, achieved without any new hires, is a testament to our belief that strategic alignment of technology and talent is the most effective route to scalable, sustainable change.

Across the industry, models from peers like Northern Trust and insights published by the CFA Institute underscore that such an approach is not only innovative but necessary in today’s rapidly evolving investment landscape.

At Three Horizons Capital, our solutions are not theoretical; they are rooted in lived experience and executed by practitioners who understand the intricacies of institutional investing. We stand apart because we bring deep expertise and a relentless focus on operational excellence to every engagement.