Even though the project finance sector is growing, fund managers continue to face challenges in areas such as cash flow, compliance, and risk management. Solutions include dynamic operating models, automation, accurate reporting, and outsourcing for operational efficiency.
Project finance, the primary method for financing large-scale capital projects, is poised for significant growth, with 86% of industry professionals who participated in a recent survey expecting its continued rise over the next five years, according to recent research commissioned by CSC.
Our research suggests real assets have increased their intrinsic worth particularly in the renewable energy, infrastructure, and real estate development sectors. This growth, coupled with the complexities around project finance, means fund managers must ensure their operations are as efficient as possible to seize the opportunities ahead.
At CSC, we’ve supported fund managers with comprehensive middle and back-office services for years. Through this work, we’ve identified several common operational pitfalls fund managers should avoid if they wish to remain competitive.
What are the top causes of inefficiency in project finance?
Long-term horizon and cash flow uncertainty
Project finance often involves long-term investments that can span decades. Predicting cash flows in such scenarios is inherently challenging, as these investments are subject to external factors like market fluctuations, regulatory changes, and shifts in demand. Without proper forecasting, fund managers may struggle to maintain liquidity and achieve expected returns, affecting investor confidence.
Navigating complex compliance across jurisdictions
With 63% of our respondents citing the difficulty in adapting to ever-changing subsidies and tax credit programs, it’s clear that regulatory compliance is one of the biggest hurdles in project finance. Projects can span multiple jurisdictions, each with its own legal frameworks, making compliance more burdensome. Missing a regulatory update could result in costly penalties, delays or reputation damage.
Lack of comprehensive risk management
Insufficient risk management practices can result in significant issues such as project delays, cost overruns, and penalties. Effective risk assessment and mitigation are essential from the outset to avoid these pitfalls.
Mitigation strategies
Dynamic operating models
A dynamic operating model can significantly improve efficiency. By organizing processes, technology, data, and resources into a cohesive system, fund managers can remain agile and adapt quickly to market changes. This leads to greater access to new markets and opportunities while maintaining operational stability.
Embrace automation and technology
Automation is a game changer for routine tasks. By reducing manual intervention, automation saves time and minimizes the risk of human error, allowing fund managers to focus on more strategic tasks such as managing project finance investments, investor services and sourcing the next deal.
Accurate and timely performance reporting
Providing investors with clear and up-to-date performance reports builds trust and ensures transparency. Consistent, accurate reporting allows fund managers to maintain strong relationships with investors, while also helping in the strategic management of the project portfolio.
Outsourcing for operational efficiency and risk management
The value of outsourcing for operational efficiency is becoming increasingly clear in the project finance space. Our research highlighted that a full suite of administrative services is one of the top considerations for fund managers. By partnering with an independent third-party service provider, such as CSC, managers can streamline their operations.
Outsourcing administrative tasks frees up time and resources, allowing fund managers to focus on investment strategies and diversification.
Third-party providers also help reduce the burden of navigating complex regulatory landscapes. By staying up to date with changes in tax laws, environmental regulations, and labor standards, outsourced providers can mitigate the risk of legal issues and fines, offering peace of mind to both fund managers and their investors.
Effective risk management is essential to the success of any project finance investment. Outsourced administrators like CSC can help identify, measure, and mitigate risks by providing tailored oversight and monitoring solutions. This enhanced level of support helps fund managers ensure operational efficiency and long-term project stability.
Why CSC? A bespoke solution for your needs
At CSC, we offer a comprehensive suite of middle- and back-office services, including fund accounting, reporting, project finance, and compliance support. Our ecosystem of services ensures that our clients have the tools and resources they need to manage their funds and investments efficiently.
We take a client-centric approach, creating bespoke solutions tailored to each client’s unique needs. Whether it’s building custom reporting metrics or offering support at any stage of the project lifecycle, we prioritize transparency and client satisfaction.
With a global footprint, CSC provides 24/7 support, ensuring that our clients receive the attention they need, wherever they are. This dedication to client service fosters confidence among investors and helps build lasting relationships.
To find out more about our recent global research with project finance professionals, including views from respondents in the U.S., North America, and Europe, download our full report, Project Finance Report 2024: Exclusive insights on key industry trends, opportunities, and obstacles.
