Untangling complexity for special purpose vehicles

To enhance returns and diversify portfolios, asset owners of all sizes are increasingly exploring non-core markets and products. The allure of alternative investments and securities often drives them to seek assets overseas.

This trend has led to a noticeable rise in sovereign wealth funds, pension funds, and insurers establishing legal entities outside their traditional markets. They achieve this by setting up subsidiaries or special purpose vehicles (SPVs) for cross-border investments and operations. However, the question remains: Are these organizations fully equipped to handle the added operational and reporting complexities that come with managing portfolios across multiple geographies and the expertise required for alternative investments?

Managing portfolios across multiple geographies has become increasingly complex for asset owners, particularly when dealing with subsidiaries and special purpose vehicles (SPVs). As organizations navigate this intricate landscape, they face several critical operational challenges that demand sophisticated solutions and careful consideration.

1. Full data transparency

Achieving full transparency across the corporate structure is crucial for the front office to make the most informed decisions, even when intermediaries such as SPVs obscure the view. This challenge becomes more pronounced with alternative investments, which are managed by general partners and often subject to data delays, as valuations are typically issued quarterly. These delays may force asset owners to retrospectively update valuations or reopen closed periods to correct late-reported transactions, adding further operational complexities.

2. Comprehensive cash management for treasury teams

SPVs and subsidiaries often use master/feeder fund structures to streamline operations. By consolidating capital from various feeder funds (which can differ in investor targets, fee structures and capital distribution methods), a master fund provides a centralized view of all cash flows, ensuring effective cash management. However, transferring idle cash in certain regions can be costly, leading to decisions to keep it stagnant until reinvestment opportunities arise. Therefore, treasury teams require comprehensive visibility across all operations. Automation and precision are critical to managing these complexities effectively.

3. Effective foreign exchange management

Foreign exchange (FX) management can be a hidden operational burden. Some asset owners rely on average FX rates for calculating and translating period results, which may result in inaccurate reporting and FX residuals. Even if this average rate is deemed sufficiently accurate, back-office teams must execute the operation for each currency pair involved. This process leads to higher hedge expenses and diminished operational efficiency. Investment managers need access to more accurate FX management without duplication of operations and increased operating costs. 

4. Timely insights from accounting

Accounting consolidation, whether partial, full, or via the equity method, is a resource-intensive process. Many investors only perform this fully at year-end, missing opportunities for timely and actionable insights. Accountants need a solution that ensures streamlined audit trails, disclosures, and timely analysis throughout the year. Only with a regular and automated accounting consolidation exercise can they gain valuable visibility into operations and the different business segments they operate.

5. Multiple stakeholder priorities

To effectively manage performance and risk analytics, the front office requires complete transparency of all underlying investments, ensuring a total portfolio view according to strategy or mandate, rather than holding status. On the other hand, accountants prioritize reporting and legal structures. This divergence can lead to misaligned processes and priorities. By adopting a holistic, unified view of the portfolio—encompassing strategies, mandates, and holding statuses—all stakeholders can benefit from reduced operational friction and improved alignment.

Managing complexity doesn’t have to be complex

Higher operational costs should not be the first consideration for investment managers when evaluating an attractive investment. With the right investment management platform, asset owners can efficiently scale their operations, ensuring growth without the burden of escalating costs:

SimCorp’s ambition: Native solutions for SPVs and subsidiaries

SimCorp is committed to revolutionizing the way asset owners manage SPVs and subsidiaries. By introducing native support for these processes, we ensure that asset owners can accurately represent and monitor intercompany investments and cashflows.

Our future consolidation reporting and analytics features will streamline year-end processes, providing valuable business insights on demand. This innovative functionality is being developed in close collaboration with leading Canadian pension plans, EMEA-based insurers, and sovereign wealth funds from the Middle East and APAC. Together, we are setting a new standard for operational efficiency and strategic insight.

For more information and any questions, get in touch with us today.