SPV Banking & Currency: The Hidden Bottleneck in Alternatives
SPV Banking & Currency: The Hidden Bottleneck in Alternatives
Many alternative investments, including private credit, real estate, private equity, and infrastructure, rely on special purpose vehicles (SPVs) to manage and hold assets. The SPV structures protect managers against liability, facilitate control, and align investor waterfalls, but they come with a hidden operational challenge: banking and currency management.
SPVs and Feeders (et al) are, in essence, legal entities created to hold a particular asset or allocation of an asset. They may be created to facilitate the pooling of funds from offshore investors that are subject to different tax rules, as is common in a Master-Feeder arrangement.
This arrangement is designed to hold assets that are then allocated across multiple funds, investors, or fund series, or provide a legal framework for different classes of investors who have different rights, risk exposures, or that sit in different parts of a return waterfall.
Add in the fact that LPs and SPVs can have multiple entities in multiple jurisdictions, and you can see why organizational charts can quickly come to resemble spaghetti thrown against a wall.
Complications
While each entity may have been created to serve a specific purpose, investment and operations teams are stuck with a tricky org chart to manage with regard to setting up each entity with accounts to collect, hold and disburse cash.
Legal requirements to satisfy local Anti-Money Laundering (AML) and Know-Your-Client (KYC) rules for bank accounts vary wildly between countries. Even in areas where rules are clear, banks often don’t move with the same urgency that investors do. While a deal may take a few days to crystallize and close, it can take months to set up bank accounts for a newly incorporated entity.
So what’s the solution?
Non-bank providers with strong cross-border correspondent banking capabilities can furnish GPs with virtual accounts in the legal name(s) of newly created SPVs. This grants access to local currency collection, holding, and disbursement in dozens of currencies, all under a single KYC process completed in as little as three business days.
The bottom line: Satisfying legal, regulatory, and return requirements can result in fund structures that are very complex. This complexity need not be a barrier to accessing global currency collection, holding and disbursement on a timeline.
This is where partners that understand fund structures can deliver innovative solutions that drastically reduce operational bottlenecks, close transactions faster, and keep their focus where it belongs, managing the dough and making it grow.
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DISCLAIMER: Opinions expressed in this article are those of the author. This article is for informational purposes only and does not constitute advice. Hedging products involve trade-offs, risks, and costs, and results may vary. Before making any decisions, consult an independent advisor not affiliated with Corpay to ensure that the solutions discussed are suitable for your business needs. A comprehensive under-standing of the complexities, benefits, and drawbacks of each hedging product is essential.
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