Optimizing Cash and Expense Management for Private Capital SPVs

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Christy: Hello, everyone, and welcome to today's webinar, "Optimizing Cash and Expense Management for Private Capital SPVs." My name is Christy DeMaio Ziegler, and I will be your moderator.

Joining us today is Marshall Saffer, RJ Bertina, and Gus Ide. Marshall is a strategic and operational business leader with demonstrated success in launching, growing, and managing software and service companies. For the past 25 years, Marshall has provided solutions to many of the largest PE funds, hedge funds, and traditional asset managers, bringing a deep understanding of operations and a strong technical background. RJ is the Head of Corporate Services at CSC and brings over 23 years of international experience in development, sales, and delivery of corporate governance services, with a focus on multinational and fund managers with multijurisdictional footprints. RJ holds a degree in banking and insurance law and is currently based in Luxembourg. Gus is the Head of Partnerships at Alpha Group and leads the strategic expansion of Alpha's global account solution. Gus works with some of the world's leading fund administrators, integrating Alpha's solutions to improve technical and operational processes for opening and managing accounts on a global scale.

And with that, let's welcome Marshall, RJ, and Gus.

Gus: Thank you.

Marshall: So thanks, everybody, for attending. I thought framing the conversation to begin with might be beneficial. So we put this brief agenda together and some of the points that we're going to cover. So we're going to start with a macro overview, talk about the banking problem regarding bank account opening, the process and the payment options, managing the cash flows associated with SPVs and some of their underlying assets, some of the operational components of actually managing the cash flows and walk through some of those. We're going to start with the macro overview, and we'll go from there to set off the conversation.

So we recently did a study here at CSC, and we polled many of the largest fund managers. And what we've come up with is we've got this SPV Global Outlook Report, that hopefully some of you either have read or will read by the end of the presentation. It surveyed about dealmaking and deployment of SPVs and the current market landscape and people talking about how it should improve in under two years from what the current state happens to be. The report did, however, point out that 64% of the people said speed and timeliness of bank account openings and onboardings were a major challenge currently for SPV portfolios. And then, there was the discussion about whether this should be run in-house or whether this is an outsource function that should be looked at by many firms.

RJ: Perfect. Thanks very much. So Gus, from Alpha, also on this call, and myself have put together a couple of important elements here, and it's for everybody to see. And everybody will be, to some extent, familiar with these items. I think it's important to first start with the fact that it is not comparable in terms of how we operate and first open accounts here in the EMEA zone compared to the U.S.

In simple wording, it is really a challenge. Also, for people who, like us, who deal with this on a day-to-day basis for a variety of different clients across a multitude of different jurisdictions, dealing with some of the largest financial institutions in the world, this is super challenging and an ever-evolving landscape.

With this challenge, we work with, well, carefully selected partners. And Alpha is one of those groups providing for banking solutions in a pretty modern way. I suppose, Gus, we are sort of proud of what we've achieved thus far in terms of catering towards our mutual clients, right?

Gus: Yeah, absolutely. Yeah, good to be on here. So thanks, everyone, for tuning in. Yeah, absolutely, RJ, I think the relationship between a bank and a corporate service provider and a fund administrator is absolutely pivotal for getting this right. I think it's also important to point out that everyone will be in a slightly different situation, depending on the jurisdictions which you're looking at, the jurisdictions where you're coming from, your investor base, and the overall strategy of a fund. So there will be different considerations depending on where you're coming from.

But yeah, also very important to highlight because I think quite a few of the audience may well be looking at this from a U.S. point of view is that a number that we've been working with U.S. managers who are coming into Europe for the first time, I think that there can be a bit of a surprise as to the onboarding requirements and how difficult it can be compared to setting up a structure in the U.S. So definitely something worth getting ahead of, definitely worth working with your fund administrator and your service provider ahead of time, and probably considerations that you want to pull up with legal teams that you might work with as well in terms of structuring.

But just looking through a few of these things, your timelines and it's drastically different I think to what we see in the U.S. This is actually going back to what you said, RJ. This is where I think CSC and Alpha have worked really well together. And just to emphasize how important the working relationship is, when you get operational alignment between a corporate service provider and their banking partner, you're really able to accelerate things. And it's really to do with understanding processes and even understanding the individuals that are involved in those processes as to how they communicate, what kind of questions they're going to be asking, how those questions are asked. It really helps accelerate those timelines. I know certainly we've seen some really big wins there, RJ, right, when we've had deal-dependent account openings that need to happen in a very short period of time.

RJ: Absolutely. Absolutely. And in general, right, I mean, the fragmented landscape that we are faced with here in Europe, Europe isn't a single market, right? There are at least 27 member states and a little bit more regulatory bodies that we need to deal with. It's really a different ballgame altogether when it comes to the account opening.

What is interesting, in terms of fragmented regulations, is that both a firm like yours and us at CSC, we are both subject to the same regulatory and legislative frameworks. So that by itself helps to set the base of important information and documentation that we are obliged to keep and maintain. And that tied into each other helps our clients typically to, well, as much as possible, make it a one-off exercise. We need to emphasize that it's as much as possible because certain documents do need to be replicated and do need additional notary sign-offs and so forth.

But it's important to keep in mind that we will, as much as possible, try and make this a synchronized process to avoid repeated queries. Stakeholders and often very senior stakeholders within our client firms, UBOs and senior partners of asset management firms who are then asked for recent utility bills and so forth, I mean, it's all a pain. It's something we will deal with in a very streamlined manner. It's something we have to deal with because otherwise we need to get these accounts opened and expedited. I think it's important to emphasize there that we join up forces ideally with a firm like yours.

Gus: Yeah, very, very important. Like I said, that operational alignment just makes life so much easier, and I think from the client point of view as well. That's just for one jurisdiction where you're probably going to have unfamiliar KYC processes and perhaps slightly different expectations around timing. But I think when you then extrapolate that out and suddenly you're working with SPVs across multiple jurisdictions, that in themselves might have their own regulations, which by the way change, I think it's really important to be working with a partner or partners that understand that.

So the word that we constantly use is consolidation, so as much as possible, giving the client a single experience, even if they are operating across multiple jurisdictions. It's not something that's very easy to do. But I think once you have that, it's worth holding on to. And I think it's a massive attraction certainly for pan-European clients and especially those coming into Europe for the first time. So by consolidation what I mean is one technical platform that you interact with, one pricing model, as far as you can one KYC and onboarding process, and one team that you're dealing with in order to actually achieve that expansion and get those SPVs set up. So I think, yeah, that's a really important piece.

And as we speak about cash management a little bit later on, having that consolidation, it becomes even more impactful. So when you look at reporting, when you're looking at cash flows, if you're doing all of that within one banking structure, regardless of the jurisdictions that you're working across, instead of multiple banking providers across multiple jurisdictions, derisks you massively operationally speaking. It also just makes everything a lot smoother from perhaps an integration process and, yeah, a reporting process as well.

So definitely worth looking into if you can get that consolidation through some sort of partnership. I'd say that would be a really important consideration.

RJ: Definitely. And so on the timeline to open accounts, right, you would agree, I'm sure, that on average, within Europe, we're looking at a six to eight weeks sort of timeline, if everything falls into place, to get accounts active, right?

Gus: I would say on average, in terms of the market outlook, yes. And then I think if you look at a partnership like this, we would probably be looking at 10 days to 2 weeks given the standardization across the structure. Yeah, I think by the standard at least six to eight. Yeah.

RJ: Yeah, and that's a reality more and more fund managers become familiar with unfortunately. I do know also it's not only negative because of the fact that once a relationship is established, we've done some turnarounds in 72 hours, right?

Gus: Yeah.

RJ: I'm thinking of one transaction earlier this week. But in reality, once a file is complete and if then an additional account is required, an additional investment in a similar jurisdiction or in the same jurisdiction is required, we can do some magic here and there, right?

Gus: Yeah, exactly right. I think to kind of go back to the ultimate stakeholders here, in terms of investor confidence, it's such an important thing. If you've got investors committing into these, as a manager or as the client, you want to make sure that you can depend on whoever is helping you with the structuring. And if it does get close to the line, you want to know that you can get these transactions done so that you can build on that investor confidence as well.

So yeah, absolutely, like you said, I think we've done 48-hour, 72-hour turnarounds if it's absolutely necessary if we need to do a transaction. So I think that's obviously pretty unusual, but it can be done if the communication is there and if the working relationship is there and if the right integrations are in place, and importantly, if you have service providers that actually understand what you're trying to achieve and understand what you're trying to do. So yeah, anything is possible if the communication is right.

RJ: Yeah. So it may be good to highlight that we have, due to experience, mapped the requirements for all of the jurisdictions that typically come into play in Europe, just to ensure that we are aware of what needs to be provided, the information, the detail of statutory documents that is required, and so forth.

Following that, account openings can take place. And then there's the maintenance, right? There's changes in legislation. There sometimes statutory requirements or regulatory requirements for us to update in the files. The partnership that we are in helps to alert clients, right, to avoid all of a sudden a standstill when pending a transaction something happens to not be up to date, we will, in the background, make sure that the accounts, once activated, are always in appropriate shape, right? We'll be quite proactive there when it comes to changes in legislation that might affect client accounts, but also when it comes to, well, changes in ownership, for instance, which we can identify.

Gus: Yeah, absolutely, and I think that's where you go from being just a service provider to a really trusted advisor. As time goes on, when we see clients depend enormously on their service providers and we see ourselves as a really integral part of that. As you said, RJ, if there's a regulation that's changing in a certain area, it's upon us. It's our responsibility, to an extent, to communicate that back to make sure that you can set the right expectations with clients and to make sure that no one gets caught out.

Even if we think things may be happening in the future, it's a conversation that we can have with the client and just say, "Keep your eye on this." Or, "There's been a regulatory change over here. It's a similar governing body in this jurisdiction. This is maybe something you just want to keep an eye on."

It's really just bringing together everyone in the ecosystem, sort of being a bit more, I guess, conversational about it. I know that sounds strange. But making sure that everyone is aware of what's going on, especially again, just to reiterate the point, if you're coming into Europe or the UK or wherever it is for the first time, and you may be less familiar with it, it's even more important to have that trusted advisor sitting within your service provider.

RJ: Yeah. Being mindful of time, there's two more elements that I want to quickly make mention of, and one has to do actually with the transaction monitoring that we listed on the previous slide. In a lot of jurisdictions in Europe, it's nowadays required to monitor transactions. There's a certain obligation on your part, as a bank, and at the same time there can be an obligation also on our part as a service provider, especially if we act as an authorized signatory, let alone when we act as a director to client SPVs. Is there something you can share on that topic in relation to the software that you make use of in relation to maybe investor profiles, so to say, that you would try and keep to ensure that transactions are properly attended to, so to say?

Gus: Yeah, it's such an important point, especially that, I guess, the world that we're living in now, where there's various socioeconomic events going on. There's changes in sanctions, and there's changes in all sorts of things that can alter transaction monitoring, or at least alter the way that it's handled.

For us, it's an enormous amount of investment that goes into transaction monitoring. As the account provider, it's absolutely paramount that we understand where funds are coming from and where they're going to, and we absolutely must meet that regulatory obligation without any questions. However, we also want to make sure that we're doing it in a way that doesn't hold up a deal or that isn't communicated poorly so that people don't set out the right expectations.

So it's a really fine balance between confidence and getting that communication right. So we use a number of different tools to keep on top of the transaction monitoring. We've also got a team of analysts here also working across different jurisdictions and with different clients to make sure that not only are we actually monitoring the transaction sort of proactively, but also communicating ahead of time, again to go back to the point we were speaking about on the last slide, if there are changes, for whatever reason, in the regulatory environment, that we're able to communicate these back up to the client or back up to the service providers and almost sort of give them a heads-up. So there's transactions that we're aware of that might be upcoming within the structure. There's recently been a change somewhere which we believe may affect these.

So it's again sort of wrapping in the technology of being smooth with transaction monitoring and making sure that we're on top of it. But also just going back to good old-fashioned communication and making sure that goes all the way back up the chain. I mean, we've seen a lot of I wouldn't even say competitors, just a lot of people in the space fall victim to how they can have really slick systems that can do all sorts of things and execution is very, very quick, but actually, if the communication piece isn't there, it's all useless, right, because otherwise all you end up doing is just stopping payments. You stop payments, but no one actually tells the client why a payment has been stopped or what we need in order to unblock it. And then funds just sort of seem to be floating around and nobody knows where they are.

So yeah, we put a lot into the technology. Just to reiterate, we've got like highly-trained analysts that are from this world. They understand the nature of transactions and why those transactions are happening, the cadence of those transactions, and the volumes and sizes of those transactions. But if things do change, we've got the communication protocols in place to make sure that the right people know at the right time.

But just to zoom in on that point there about the specialists, that's also really important because some of the transactions within this world can be quite niche. They are specialists. You do need to understand why funds are being sent and for what reason. They may not fit into the typical category of transactions that a more generalist bank might see. So having an understanding of what those are and why they're happening, and, like I said, cadence, volume, and all those things really helps us push through what we can in a timely manner and not kind of over ask questions that are unnecessary.

RJ: Thanks. So then the final piece right now, what about technology in terms of a client portal or a client's sort of overview or dashboard that they can expect to be making use of?

Gus: Yeah. Again, really important.

RJ: Across jurisdictions, right? There's different jurisdictions in play.

Gus: Yeah, absolutely. It's so important. And actually the expectation on technology is getting higher and higher and higher from service providers and from clients. And not even the expectation on the standalone piece of technology, but the expectation on that piece of technology to work in tandem with others as well. So again, a lot of effort from Alpha at the moment going into integrations, integrations with TMS systems, integrations with reporting systems, cash management and forecasting. I mean, ultimately, all the money is moving through the accounts, right? So if we can push information in real time and in a well-connected manner out to other systems, then again we see ourselves as a better counterparty.

And also, not all banking counterparties are willing to necessarily engage on that integration piece. It's quite a lot of resource that goes into it. There can be quite a lot of red tape within some of the larger organizations to get those done. So we definitely maximize our input on those sorts of conversations to make sure that we are kind of meeting expectations around integrations.

But then also, yeah, the system itself is built for this industry and this industry only. So we've kind of cut the fat out of it if you like. We want people to be able to log in to the platform and use it immediately, rather than have to do dozens and dozens of training sessions just to make a payment. Obviously, those are available if you need them. But we don't want to have to put people through that just to do something relatively simple.

And then, actually, the last bit I'll say on technology is the actual onboarding. We spoke earlier about KYC and AML and what that looks like and how it can vary by jurisdiction and how it can perhaps be a little bit unexpected if you're coming into Europe for the first time. Digitalizing that as much as possible has been hugely beneficial to our clients. Building out onboarding forms, huge.

Marshall: And we've covered the life cycle and jurisdictional nuances. I thought maybe now as a group we could just cover some of the operational challenges. So we touched briefly on technology towards the end. But I think the concept of how do we treat cash management and the overall treasury function as an Alpha generating activity from just a check the box or make payments. So I think some of the things that we've been looking at, when it comes to SPVs and overall funds in general, is how can we create efficiency around this process within the industry for our clients. Can we provide solutions that help them, whether they run this internally, or can this be an outsourced function?

So if we look at private capital managers and what they need to deal with on a daily basis, it has to do with reconciliation, it has to do with cash management. You've got liquidity. You've got projections. You've got capital calls and distributions. The auditing, the staffing, and everything around this process that has to be addressed.

From our standpoint, we do believe that this can be a highly outsourced function if you can work with the right provider that can take this on a standalone basis and provide you with the dedicated staff and the knowledgeable staff that's allowing us to be an extension of your organization and building a partnership to where your internal people can be viewed more as overview, oversight, risk mitigation, and allowing a vendor like ourselves and Gus to actually do what I consider the grunt work or the lower-level tasks.

Do you guys have anything you want to add to this slide before I move on to the next slide? Gentlemen?

Gus: No. I think you covered it. Yeah.

Marshall: Okay. From an ecosystem standpoint, this is just a very high-level overview of how we see the process as a team in terms of what needs to be done. From an aggregation standpoint, where you're getting the information from, what has to be aggregated, and where that challenge is. You then have the internal optimizing and the reporting and the forecasting. And then, obviously, ending in the execution component, whether it be payments, whether it be capital calls, whether it be FX trades. But from a firm standpoint, this is how we see the ecosystem looking and the various workflows. Makes sense, RJ and Gus?

Gus: Yeah, it makes perfect sense. I just think it's interesting seeing all those different sort of parties and processes, how important it is to get it right because if you don't get it right, it can lead to truly bad consequences.

Marshall: Agreed. So to kind of wrap up where I think that where our firms can actually assist people, we can assist with the cash management and the reporting. We can assist with the bank account opening and the KYC. We can, in a global world, help you with the FX hedging component and debt and covenant management, liquidity management, capital activity, and obviously transaction management and wires. We'd like to be a provider that can be viewed as an extension of your organization and more than just a vendor.