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Thoughts

SPV administration in Asia – three steps to simplify the process for managers

June 2024

The increase in the amount of private capital being invested in Asia in recent years has also caused a jump in the number of Special Purpose Vehicles (SPVs) in the region, as the alternative asset management industry relies on corporate structures upstream of their investments for asset segregation and tax efficiency.

While SPVs serve a clear purpose, they also add a layer of complexity to portfolios from an operational perspective that investment managers must contend with. The prevailing model followed by the majority of investment managers in Asia for their SPV administration sees each department relying on their own suite of service providers and the data they provide.

A typical example of how this breaks down in practice is as follows:

  1. Corporate governance and compliance falls under the remit of legal counsel who outsources the responsibility to law firms or specialist corporate services providers.
  2. Financial reporting to the investment manager and the investors is the purview of the Chief Operating Officer or fund controller who relies on an in-house team or a fund administrator.
  3. Financial Statements and audit are the Chief Financial Officer’s responsibility.
  4. Compliance with tax obligations will be outsourced to tax advisors by the tax director.
  5. Treasury and cash management is often divided between deal teams for investments and the finance function for BAU transactions.

This means a typical investment transaction through a single SPV involves multiple stakeholders, including both internal and external parties.

Investment decision
Tax advice
Incorporation
Bank account
Board Meeting
Fund Flow
Cash reconciliation
  • Internal: Investment Committee
  • External: Consultants
  • Internal: tax director
  • External: Tax advisor
  • Tax advisor
  • Internal Legal counsel & compliance
  • External: Law Firm
  • External: corporate service provider
  • Internal: Finance dept & compliance
  • External: Bank
  • External: Administrator
  • Internal: Legal counsel
  • Internal: Deal team
  • External: Law Firm
  • External: corporate service provider
  • Internal: Deal team
  • Internal: treasury depatment
  • External: Administrator
  • Internal: Finance department
  • External: Administrator
Investment decision
  • Internal: Investment Committee
  • External: Consultants
Tax advice
  • Internal: tax director
  • External: Tax advisor
  • Tax advisor
Incorporation
  • Internal Legal counsel & compliance
  • External: Law Firm
  • External: corporate service provider
Bank account
  • Internal: Finance dept & compliance
  • External: Bank
  • External: Administrator
Board Meeting
  • Internal: Legal counsel
  • Internal: Deal team
  • External: Law Firm
  • External: corporate service provider
Fund Flow
  • Internal: Deal team
  • Internal: treasury depatment
  • External: Administrator
Cash reconciliation
  • Internal: Finance department
  • External: Administrator

In this model, communication predominantly happens within each respective segment and data is mainly shared over emails. The process is further complicated if funds require additional SPVs to invest in multiple jurisdictions.

A more streamlined approach:

The problem with the above model is that it is outdated, inefficient and inherently prone to risk. An over-reliance on emails, and a lot of segmentation, means communication channels can be strained and delays can occur frequently.

So how can things be done differently in the alternative investment world? Below are three key steps which investment managers can take in partnership with their service providers in order to create a modern and holistic approach which is smoother, less time-consuming, and less prone to errors occurring.

1. A centralized control framework

The first building block to streamlining this process is for all functions to adhere to a single control framework. This ensure quality controls are standardized and service levels are consistent across the various functions. While some investment managers develop their own quality control and audit function to manage multiple external service providers, the most common way to achieve this is by consolidating services with a single service provider with a focus on operational excellence. These service providers should be able to provide transparency over the controls built in their processes and systems. They should also have appropriate certifications (such as SOC1, ISOXXXX).

The benefits of this approach include a consistent service delivery across functions, and also allow investment managers to intervene quickly and thoroughly in case of escalation, as they do not have to manage multiple external parties in the event of a risk incident.

As a further step into the partnership, specific processes and controls can also be designed and documented to fit the investment manager’s modus operandi and fund specifics.

2. One workflow to cut down email traffic

Connecting corporate governance, financial reporting, treasury and other functions, and integrating them into one workflow where possible, makes the entire administration of an SPV much smoother. For example, a funding exercise typically involves treasury, corporate secretarial and accounting. By creating a unified workflow and connecting the various systems, investment managers can eliminate email traffic between the three lines of business, increasing speed of execution and mitigating risk by providing more clarity on who needs to do what next in the process. Sensitive and deal related data remains within the same environment, taking it off email and therefore reducing the risk of data breaches.

3. Data consolidation

The final and most visible element is to consolidate the data of all SPV administration services into one platform. Combining data across functions into dashboards with slice and dice functionality allows the investment manager to access the required information directly, instead of via emails from multiple vendors.

To achieve this, administrators need to focus on implementing a direct and single source solution for data, with the capability to provide the information across multiple channels (such as via cloud vendors such as Snowflake, or through data centers) to the required stakeholders. Such a solution is a key differentiator for the alternative asset management industry, and one that will be further bolstered by the increasing use of artificial intelligence on real-time data.

The advantages of data consolidation include enhanced transparency and access to data for the relevant stakeholders, and improved scalability.

To learn more about Citco’s SPV administration solutions, or for any other queries, please get in touch.

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