APAC private market firms are less likely to outsource SPV management than those in North America and Europe, but trends indicate future growth in outsourcing driven by regulatory and transparency demands.
Private market investment firms in APAC are currently less likely to outsource the deployment and management of special purpose vehicles (SPVs) to third parties than firms in North America, the U.K., and Europe, according to new research from CSC. We surveyed 400 senior private markets professionals in Europe, North America and Asia-Pacific in the first quarter of 2024 on a range of industry subjects, particularly the use of SPVs in optimizing transactions.
We have used the results of this research to inform our new report, SPV Global Outlook 2024: Charting the Course for Growth in Private Markets.
Just 10% of respondents to our research with private markets professionals in APAC said they outsource deployment and management of SPVs. However, there were some variations when the different sizes of firms were analyzed—for those with up to $1 billion in assets under management, some 40% currently outsource.
At CSC, we recognize the huge opportunity for more firms to outsource in the APAC region—particularly smaller firms—because of the cost savings and jurisdiction expertise that outsourcing can provide. Outsourcing allows firms to leverage expert knowledge and efficient processes, reducing the burden of compliance and ensuring alignment with global standards.
Larger managers might do more in house now because they have more infrastructure—but even here we expect more firms to outsource in the near future.
What’s driving greater levels of outsourcing in private markets?
The greater levels of outsourcing that are expected for managers of all sizes will be driven by a number of trends.
- Forthcoming changes in the way that firms in the region address the careful balance between greater data transparency and higher standards in data privacy should mean greater uptake of third-party organizations to manage SPVs on a firm’s behalf.
- Larger, global managers are expanding into APAC, and they will want to outsource SPV services with a view to having a truly global view of all their entities.
- The adoption of more stringent measures in areas such as Know Your Customer (KYC) and Anti-Money Laundering (AML) adds to the administrative burden of managing SPVs. It also lends itself to the use of third-party technology solutions that support automated processes and the reduction of manual workflows.
A proliferation of solutions
Almost half (49%) of respondents in our study said the use of SPVs has already become more commonplace because of the proliferation of outsourced solutions to expedite the setting-up process. A higher number (65%) of respondents in APAC than in either North America or Europe said that SPVs have become increasingly easy to set up and run.
The findings suggest that there’s a growing trend for firms to use SPVs in the region, whether that is to ringfence individual assets and their performance, protect parent companies’ assets and liabilities, make it easier to exit or sell assets, or to achieve tax efficiencies. We also note a recent trend for firms in APAC to use SPVs to support employee remuneration structures, which are vital to maintain in a sector affected by skills shortages and within a market moving towards greater transparency.
Market conditions are set to improve, but slowly
Looking further into the future, private market professionals in APAC are optimistic about market conditions for dealmaking and the deployment of SPVs in their sector to improve, but less so than European and North American respondents.
Four-in-10 (39%) of APAC respondents said it would take more than five years for market conditions to improve, compared with 14% of those in North America and 20% in the U.K. and Europe. Just 12% of APAC respondents said that market conditions would improve in less than a year, compared to 28% in North America and 27% in the U.K. and Europe. Factors behind their relative caution could include geopolitical tensions and economic uncertainty, increased regulatory scrutiny in sectors such as technology and finance, change in foreign direct investment (FDI) policies, and the aforementioned skills shortage. Overall, these factors have an impact on long-term business confidence, which is fueling a flight to more mature and predictable investment markets, such as Japan, South Korea and Australia, especially for real estate.
Amidst geopolitical tensions, economic uncertainties, and increasing regulatory scrutiny, outsourcing SPV management offers firms a way to improve operational resilience. By leveraging the global expertise of providers, firms can navigate these complex conditions more effectively and maintain business confidence in challenging markets. But the move towards greater transparency, along with improved data privacy, is creating the need for more robust technology platforms that can support greater administrative and reporting requirements that are now in play.
How CSC can help
CSC provides end-to-end private capital fund solutions with the ability to serve clients at a global SPV level, through administration and investor services at the fund level. From initial formation through continuous administration, CSC’s team of experts provides comprehensive and consistent global services, providing tailored administrative services, regulatory expertise, and operational efficiency.
Interested in finding out more? Download and read our new SPV Global Outlook 2024: Charting the Course for Growth in Private Markets.
