As private markets in North America turn more bullish and the use of SPVs intensifies, the spotlight is on the significant benefits available from working with a single, one-stop corporate service provider for the end-to-end management of SPVs.
As markets recover in North America, fund managers are ramping up the use of special purpose vehicles (SPVs) for their U.S. investments.
Our recent research with more than 130 senior private markets professionals in North America found respondents are optimistic about how the market conditions for dealmaking are set to improve as well as the investment potential in financial services, technology, healthcare, and renewable energy.
Half (50%) of our respondents said they expect market conditions for deal-making and SPV deployment to improve within the next two to five years, especially in private credit, real estate, and infrastructure. More than a quarter (28%) were even more optimistic, forecasting improvements within the next year.
Challenges, risks and the impact of greater complexity
Our respondents stated that the biggest drivers of using SPVs over the past few years have been the protection of parent companies’ assets; ring-fencing of individual assets and their performance; ease of exit and selling assets; and tax efficiency.
However, despite the fundamental purpose of SPVs, respondents say there are still challenges associated with setting up and managing them. They cited challenges such as responding to market volatility, regulatory changes like the Corporate Transparency Act in the U.S., and gaining access to suitably qualified staff.
The biggest challenges to forming and running an SPV:
- Complying with economic substance regulations—51% ranked this most highly (5 on a 1-5 scale)
- Responding to regulatory changes—33%
- Access to suitably qualified staff—27%
- Responding to taxation changes—25%
- Dealing with multiple stakeholders in different jurisdictions—12%
One of the most surprising findings from our North American outreach was how many firms admitted to addressing regulatory changes at the last minute, “just before implementation”. 54% said they proactively identify potential regulatory changes as early as possible, and two fifths (42%) said they leave the planning until just before implementation.
Overall, as markets have evolved and investors and regulators have demanded more information and greater transparency, private market professionals in North America have had to deal with greater complexity. For some this means more risk.
Outsourcing to professionals is an SPV best practice
One way to address these challenges and minimize risk is to work in partnership with a corporate service provider that will take on the day-to-day responsibilities for administering SPVs successfully.
On a positive note, our research found more than a third (35%) of our North American respondents said the use of SPVs has become more common because there are broader solutions available to expedite the formation and maintenance process.
Managers outsource SPV management to corporate service providers for reasons centered around expertise, continuity, efficiency, centralization, risk management, and gaining access to technology.
Resolving the challenge of managing multiple providers
Some managers find themselves outsourcing to numerous service providers driven by the complexity of their operations.
Our study found that, of respondents from all regions globally that outsource, 20% use one outsourcing partner to set up and administer SPVs, just over half (53%) use two and 20% use three.
While the multi-partner approach can provide benefits in terms of accessing specialist expertise, it also necessitates careful management, coordination, and communication to optimize operational efficiency and avoid risk. For instance, using multiple partners can lead to inefficiently utilized local resources, as well as financial and reputational risks.
Outsourcing to multiple service providers can introduce challenges such as:
- Coordination and integration: Managing multiple providers requires effective coordination, communication, and integration to ensure seamless operations and data consistency.
- Increased complexity: Handling relationships with various providers can add complexity to fund manager’s operations management.
- Potential overlap: There’s a risk of overlapping services and inefficiencies if roles and responsibilities are not clearly defined.
With a one-stop shop global corporate service provider, crucial time and resources are saved, allowing fund managers to focus on lucrative deals and investments.
How CSC can help
There are few providers that can deliver the range of global expertise and local knowledge required to incorporate and manage SPVs, including formation and implementation, handling filings, providing a business address and mail forwarding, director and officer roles, corporate secretarial, accounting and reporting, cash management, and payroll services.
At CSC, we’ve established our credentials as a trusted corporate service provider offering all services under one roof. CSC has capabilities in more than 140 jurisdictions, allowing fund managers to engage with one global partner instead of needing local providers in each jurisdiction.
Outsourcing SPV management to CSC allows managers to benefit from specialized expertise, global reach, operational efficiency, continuity and risk mitigation, and enables them to focus on core investment activities to achieve strategic goals.
Above all, outsourcing to a single partner supports compliance, contributes to operational success and cost-effectiveness, and achieves return of investment and profitability.
Interested in finding out more? Download and read our new report – SPV Global Outlook 2024: Charting the Course for Growth in Private Markets
