SPVs: The Backbone of Data Center Expansion

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Annie: Hello, everyone, and welcome to today's webinar, "SPVs: The Backbone of Data Center Expansion." My name is Annie Triboletti. I will be your moderator kicking things off today.

So joining us today are Maarten Brinkmann, Bas Coenen, and Phillip Hendy. Maarten is head of Private Capital Solutions in North America with CSC. Bas is head of Fund Solutions for Europe with CSC. And Phillip is head of Real Estate for Jersey with CSC. So I would like to welcome Maarten, Bas, and Phillip.

Bas: Thank you, Annie, for the kind introductions. I've been given the kind duty to tell you a little bit more about CSC for those who do not know us that well. CSC is a global company. We have capabilities and expertise in over 140 jurisdictions. We have 8,500 and counting employees and staff across these areas, roughly divided equally across the geographies, Americas, Europe, and Asia. And we focus, as a company, fully on administrative and management services right across funds, across capital markets, and across specialized admin services for SPVs. As a company, we have an existence of over 125 years, and we've been privately held for all that period of time, which really allows us to focus on longer-term partnerships for our clients.

Maarten: Thanks so much, Bas, for handing it over. And again, a warm welcome for everybody here, and thank you for joining us today. We are very proud that we have released earlier this year our SPV Global Outlook report. This is for the second time we've been doing this. In this report, we have surveyed over 400 general partners across various asset classes, including private equity, real assets, infrastructure, private credit, and private equity, by which we are representing GPs for North America, EMEA, and APAC.

Especially and designed for this webinar, we have all seen that there's a forecast global rise in data centers' capabilities and the infrastructure investments around it. And typically we have seen and also came out of this report that the need for SPVs is growing and increasing and even more demanding nowadays. And GPs are finding ways and solutions in which the outsources of these SPV services to service providers like CSC can be structured.

We have seen that multiple layers of SPVs are required nowadays, which makes it even more complicated for GPs. You should think about holding vehicles, bidding vehicles, financing entities, operating entities, property companies, and, of course, also the SPVs for financing and managing debt for the actual acquisition of a portfolio company or working together as a joint venture partner. We will zoom in later on that during this presentation.

For these kind of SPVs, we have released this report. And in this report, you will find also how fund managers are adapting their strategies in response to these challenging and uncertain markets as they are today. We will zoom in on these elements during our presentation. And as mentioned in the side panel, you can see this report, and otherwise, we will be happy to provide you this report and talk about it more after our presentation.

Bas: Then a little bit more content on how at CSC we see basically the global administrative services that were briefly described and in connection to the SPV report in data centers, of course. So at CSC, and supposedly across the market, we generally see that a service provider could provide a full end-to-end solution from the administrative and management perspective, from basically the GP and the investment manager at the top, let's say close collaboration with the LPs, right? Obviously, the LPs will have a final say in all kinds of investment decision-making through the investment committees, etc. But the GPs will lead the charge on investments.

At the fund level, there is, of course, a role for a fund administrator, which CSC can provide. And at the SPV level and portfolio company level, of course, there is management and administrative roles that CSC could deliver.

We envision that this full suite of, let's say, corporate admin, fund admin, etc. could be provided from within one organization, thereby allowing for further efficiencies in data, in admin, etc. And I believe that it's important to outline here that our core fund admin offering is, of course, combining all of these elements, right?

So at the level of the GP and the investment manager, we can provide AIFM services, for example, in Europe, but also a management company, for example, in the U.S. and/or in the APAC region. There is an ability to support, for example, with executive compensation plans and salaries.

Whilst at the level of the LPs, there is, of course, a strong trend nowadays to focus a lot on administrative support, for example, for onboarding of LPs, AML and KYC process, etc., which are deeply regulated these days. And typically we see that our clients benefit from support, standardized protocols, automated processes, but at the same time being able to continuously access their data.

At fund level, naturally there is a full level of fund administration accounting, fund accounting taking place, and NAV calculation that can be done. And with one consolidated service provider approach, the benefit is that also the admin accounting at the level of the SPVs and the portfolio companies can essentially be integrated into a full consolidated model. We'll speak about that a little bit in more detail later how that specifically works for real assets and for data centers. But as you can imagine, many funds will essentially set up SPVs and/or have portfolio companies that in the end have the data centers in their possession.

We view this as really a top to bottom solution, but also across the full life cycle of the fund and the SPVs that are in play. And one thing I think is important and relevant to mention here, obviously, at CSC we are quite adept at fund admin plus SPV admin. But we also see a recent uptake in a lot more requests for support with an outsourcing angle, but also co-sourcing models, right? So this means that, for example, CSC could take a strategic function as part of a GP organization or an investment management organization, either working on our own technology platforms or on those of the clients. So we are able to essentially cover all those areas.

Then a few of the key drivers that we have identified for data center SPV adoption, right? So we're going to drill down a little bit deeper into the data center specifics.

So starting off with artificial intelligence, as you are probably all aware, there's a strong push on AI, which, of course, means there needs to be a lot of bandwidth from a systems perspective to basically run those models. They consume a lot of calculation power and for those data centers are a critical need. This is the more recent trend, I think, that is relevant to mention. But you could also think of the COVID crisis, in which working from home was all of a sudden very apparent. And obviously, this also required additional bandwidth at that time. So these elements next to the general need of everyone to spend more hours online are significantly driving data center expansion. So we're actually also seeing that in practice, right? We're seeing, obviously, a lot of additional structures being set up that hold these data centers as the real assets.

Then why are there more SPVs in that sense? What's a key driver for SPVs? That context, that is the SPVs allow for additional flexibility, and there will be a little bit more detail on specific structures later. But generally speaking, SPVs house data centers, which makes it easier for those or, let's say, the owners of those SPVs to essentially sell or acquire the underlying properties. So it allows for a bit more flexibility in the transferability of the underlying data centers.

Maarten: Thanks, Bas. And I will zoom in a little bit more on numbers three and four. And number three, we have highlighted there, is the ease for joint ventures. I think we've all seen in the news that our astronomical values now, money is being needed to build and expand data centers. As such, it is highly capital-intensive. If you also take into consideration all the land that's required, all the energy infrastructure around these data centers, the cooling, connectivity, everything is involved. And that's also why there's money, capital needed for this. And for these SPVs, that's also why we see that a lot of leading fund managers are teaming up by the use of joint ventures. These joint ventures have several reasons. And one of this, and an important one is to team up with local strong partners, especially around energy in certain areas where these fund managers are not active yet.

With that, there's also, on the number four, a need for risk isolation. With this risk isolation, these SPVs are separate entities within corporate structures of these fund managers, isolating several risks. And the fund managers also benefit by isolating these risks through these joint venture SPVs, for instance, for bankruptcy remoteness, separation of liabilities, or specific project financing which needs to be isolated.

So with that, handing it over to Phillip for number five and six.

Phillip: Thank you, Maarten. So tax advantages. So many investors into this space have different tax rates. And we have the ability to host in a jurisdiction that minimizes tax leakage or minimizes tax costs to those type investors where people are doing joint ventures between, say, sovereign funds or pension funds and local operators. And we've got a solution in each of the jurisdictions that CSC can deliver to help that. And we can help those entities, whether it's incorporation, ongoing substance administration, regulatory and tax compliance. But most of those jurisdictions are possibly locations that are not where the actual asset is.

In terms of financing benefits, the benefits of having SPVs are often to do with reducing withholding tax or allowing to just pledge security over certain assets or shares to the lenders on a non-recourse lending basis. Effectively you're ring-fencing the particular asset you're financing and not having any cross-collateralization to other parts of your business or other of your data centers.

So that's the collective benefits of why we feel that there's key drivers for people using more and more SPVs in this particular space of data centers.

Okay. So why CSC? So there's various differentiators that CSC offers. So the first one would be the centralized global presence. As we referenced earlier, we've got presence in 140 jurisdictions, starting off in the Americas, moving through Europe and the Middle East, and then to Asia Pacific. So we have the ability to deal in a time zone that you're operating in or the local time zone.

In terms of jurisdictional expertise, we've got people in each jurisdiction with the experience to run the entities and make sure that those are kept up compliant with the local regulations and jurisdictions, and providing you with updates as to when things are changing. But on top of that, we've got the knowledge of real estate and data centers either held locally or within the overall team.

In terms of world-class service, this business is 125 years old and has built itself on excellent client service continually to where it is today. And that's something we take very seriously. And that's why we look ourselves as being the business behind the business.

In terms of industry-leading solutions, we're continually looking at what's available in our own technology stack as well as what can be brought in from outside. And now, we're providing real-time updates in terms of Yardi onto portals as well as our own Entity Management system. We’re trying to get more and more automated and centralized so you can look at the data that you need to see when you need to see it, and aggregate it amongst all of your entities, rather than speaking to separate providers and trying to put the time and effort into getting that all together for yourselves.

So over to Maarten.

Maarten: For the use of data centers, they can be used for joint ventures. They can be used as an Equityco, a Topco, a Midco, a Holdco, a Bidco, a Finco, and a Propco. It's all a little bit technical, but again, we're going to touch base on that in the case studies to give you more examples and hand-holding on that.

But with this slide, we want to zoom in a little bit more on what we can do on these specific SPVs and what our role is going to be. You will see here we call this the full life cycle of our SPV services, depending on the geographical location in EMEA, APAC, or in the U.S.

We start, obviously, with the formation, depending on where you are based or looking for assistance. We work very closely with leading law firms and tax advisors, which in some cases help with the formation if that's required by law and local regulation, of course. And we do that in a joint effort with the advisors and the client.

We can provide our domiciliation services, which we are providing for a business address and doing mail handling for our clients. We can do the full suite of corporate secretarial services that need to be outsourced. We make sure with these services that we host and convene board meetings, shareholders' meetings, take care of all filings, the minuting, and keeping your company in good legal standing.

And also, an important factor is directorship services. This is typically also needed also for tax substance requirements or to make a split in the decision-making. We are able to provide these directors, and it could either be a personal director, a corporate director, or an independent outside director.

Phillip: Okay. So in terms of accounting and reporting, we can provide for the SPVs that hold the assets or, alternatively, part of the wider structure and hold companies, management accounts. We can also do statutory financial statements to whatever local accepted accounting standards required, but also to the accounting standards that you need. We can also do consolidation at various levels, and we can do general financial reporting, audit support, and also help you with the specific tax reporting you may need. And we can do that through a variety of platforms. We can do it through Yardi. We can do it through our own internal accounting platform. And on Yardi, we do accounting on instances of Yardi for clients as well as our own instance of Yardi.

In terms of tax and audit assistance, we can help with corporation tax and VAT, and obviously help provide all that information to auditors to take everything back to ensure that the audit is completed satisfactorily and quickly and efficiently.

So over to Bas.

Bas: Thank you, Phillip. Treasury management. So whenever you are contemplating setting up SPVs and it's, of course, important to ensure that the cash balances are as optimally managed as possible. And we support our clients essentially with the whole process from start to finish. So from bank account opening with the bank, we have a couple of existing relationships with preferred banks, but generally speaking, we would be open to work with any bank of your preference. Potentially if you have a house bank, then we can essentially collaborate closely, and we can guide this process of setting up the bank account. And this is just the start, right?

Of course, whenever there is cash activity, then CSC would be able to execute those payments, either in a, let's say, full-service mode where CSC basically follows the transactional documentation, fulfills all the payments that are needed or required operating expenses. But also, for example, investment expenses in case, for example, a construction process or a data center. But in general, all payments, collections will be tracked, and CSC can also take a partial role in that activity where, for example, the client sets up the payment and CSC executes.

To do this, CSC also has in place a payment approval and execution tool. So we have a proprietary tech suite in which this is one module that we essentially offer to our clients and use for internal purposes as well.

Then next to that, we are obviously able to provide cash projections and cash flow management. And also here, I want to circle back to the end-to-end solution, where we can do this across multiple SPV levels, including the fund. So the benefit there is that there can be consolidation of numbers across multiple vehicles in a structure. And there's an option to support with, for example, FX spot trades and hedges.

Then moving over to the regulatory compliance aspect, so, of course, there is in pretty much every jurisdiction, at least in Europe, a need for ultimate beneficial ownership reporting, which is something we do on a day-to-day basis. And the same applies to the AEOI, automatic exchange of info for FATCA and CRS, but as well, DAC-6 reporting, which really focus on tax transparency. In both cases, we have ample experience with these reports towards regulators.

Having said that, these are a couple of core items that we see for SPVs. But generally speaking, CSC has a lot of experience with many specific regulatory reports across jurisdictions, across vehicles, both SPVs and funds. So if you have any specific inquiry on this, then, obviously, feel free to reach out later.

Moving over to a slight bit of technology, we believe that when you speak about data centers, technology should be one of the core elements to touch on. Of course, the tech runs on state-of-the-art data centers nowadays. And we wanted to highlight in the context of the asset strategy or the asset class, the following two core applications.

First of all, that's Yardi. Yardi, we use at CSC for essentially most, if not all, real asset strategies. We believe it has a very strong capability for consolidation across entities or vehicles. So whenever as a fund manager you set up a fund structure, multiple SPVs, accounting is done internally in Yardi for all those entities, for all the fund vehicles that you may set up. And that can be, for example, the per jurisdiction level consolidation, etc., etc.

Furthermore, we very much acknowledge that every GP, every fund manager really wants to have a full control over data and/or wants its provider to have full control over data, right, financial data, but in many cases also property-related data. To that end, CSC is very much able to, for example, set up APIs with, for example, property and asset managers to take in the data directly into the system on an automated basis, which essentially helps to consolidate all the information into one system. And what could be the potential benefit there, when working with CSC, is that CSC also has built a proprietary platform of modules, technology modules, such as the payment system referred to before, that all connect to our data lakehouse, right? And the data lakehouse consolidates all the data, but also makes it possible for us to disclose data, share data directly back to the GP or the fund manager. Plus, it enables us to plug in several additional modules as the requirements of your organization may change or may improve.

So very briefly, on Yardi, the specific items that have been outlined here, right? It covers the core items of admin reporting, accounting, but generally provides a lot of solutions for consolidation, multi-currency as well, portfolio reporting, tailored analysis. There is, of course, automated import and export functions as referred to for the data piece. There's automation in place for allocation of income expenses, IRR calculations, ROI calculations, and preferred returns. Furthermore, the application system allows, for example, for automation around capital activity, such as capital calls and distributions where we can obviously, with a click of a button, run a batch of distribution notices as an example. And then there is finally, but not least important, many dashboards available on performance and data connections also to, for example, Power BI.

With that, I hand over to Maarten for Entity Management.

Maarten: Yeah. Thank you so much, Bas. And what we've seen nowadays also in our data collectors, but more often our SPV Outlook report is that technology obviously is now central to managing global SPVs. For fund managers, SPVs are no longer just pass-through entities as they have been in the past, and that's explained with all these different functions they have. But it should be taken seriously by managers and able to manage all these global entities in a right manner. And GPs should actually be ahead of that by anticipating to local regulations and considering to turn this oversight from complexity into transparency.

And we are very proud of our award-winning Entity Management platform that centralizes and captures all these functions in workable dashboards. And that has proven to be a game changer for GPs managing hundreds of SPVs on a global scale. And we created this platform that actually provides a single view of these entities across several elements.

On the slide here, you see several reporting functions that are feasible in this Entity Management platform, and our GPs and all the clients hereby can track, for instance, the compliance obligations, cash movements, filing deadlines, and the ownership structure. And that's all centralized in one place. Our clients, therefore, also benefit from a 24/7 truth of source. And also for a business continuity point of view, you have a true source with all your company data around the SPVs that are being managed globally. And we are happy to provide more information on our Entity Management platform. Separately, we have several other webinars recorded for this platform. So we'll be happy to provide you more information after this webinar.

Then to highlight once more before we dive into some case studies and to elaborate a little bit more on how we are assisting our fund managers and GPs, we want to highlight once more why we are very proud that we are managing and working together with leading global fund managers. On the left-hand side, you see some of the numbers over there. And especially the fact, which was also highlighted by Bas and Phillip before, is that we are a privately-owned company for 125 years in existence, which is creating a long-term investment and stability for which our clients benefit from.

With that, we're moving over to the case studies to zoom in on three different case studies. And the first one, I would like to hand over to Phillip.

Phillip: Maarten, thank you. So let's try and bring this all to life a little bit more and talk about how we've delivered the services that we've just collectively been through. So the case study we're going to look at quickly here is a data center investor that currently has multiple local people running their SPVs over multiple jurisdictions. So what they're finding is that it's taking an enormous amount of labor on the client end to deal with those local advisors. There's lots of manual work required to track what's going on in each jurisdiction. Their reporting is completely fragmented and not in a consistent standard. And they also have different projects having different governance practices in their SPVs and not necessarily in accordance with how they'd like to run things centrally.

So we've been talking to them, and we're looking at providing a different type of way of working for them that will be significantly more efficient. It would be based around having centralized points of contact in terms of a global relationship manager, but with local people and local transactions being managed in the particular jurisdiction that the SPV is in. What that means is that they'll see consistent compliance and reporting frameworks delivered through our portal, that Maarten has just spoken about. They'll also be able to see visibility for the investors and stakeholders through that portal of what's going on.

Everything will be standardized within the format that the data center investor wants, whilst reflecting local requirements and needs, and will also have a centralized team that's doing the accounting and various of the reporting obligations back through. Meaning for the client, it's a much better experience, it's much more seamless, and the amount of time and effort to currently run it will be completely eradicated, and the efficiencies driven from that will let the client get on with what they want to do in their core business, which is driving forward on investing in data centers and driving the returns to their investors, and not running a series of corporate administration businesses and how they run their SPVs.

So let me hand over to the second case study, and that's going to be done by Bas.

Bas: Thank you, Phillip. Second case study is of a transport operator, who came to us basically through a well-known business partner of ours in the European market. Essentially, the case came to be off the back of the client essentially having problems to really keep oversight of their international obligations, risks, etc. As you can see, they were in nine jurisdictions, difficult to track the regulatory requirements. And generally speaking, this was partially caused by the fact that they were using some smaller local administrators for each of the concession SPVs. This also resulted in some non-standardized reporting across those jurisdictions, which because there was no standardization in a sense, also produced relatively heavy reliance on manual document management, right?

So from this initial sort of risk that was sort of seen or observed by the client through their lawyer, they reached us, and CSC essentially was able to create more clarity in this specific case by, for example, putting together a centralized compliance monitoring and risk-tracking overview based off a unified operating system, administrative system. There was no longer any disjointed reporting, and essentially the digital platform for document and entity management was one of the key solutions that we were able to bring forward there. Basically allowed for proper tracking of, for example, regulatory deadlines, regulatory calendar, and ensuring that all the documentation was also adequately and digitally held.

And then it's over to Maarten for the next one.

Maarten: Thanks, Bas. And my case study is an example of our 360 approach that Bas highlighted early in the beginning of this presentation, which is also unique for our model. This is around a leading U.S. fund manager that was an early adopter in the data sense and the infrastructure space, but they didn't have any owned offices in EMEA and APAC. And that's where they were targeting their portfolios and some joint ventures, as we touched base on earlier.

With this 360 approach, we were looking after their funds, but they also wanted to consolidate their SPVs with CSC. The magic word here, and that is also what's shown in our report, and what we see more and more with our client base is consolidation. SPVs are needed to be taken seriously because the oversight is very important. As you will see on the slides, they were active or became active in 18 different jurisdictions, with 32 SPVs all crossover. And the problem was scattered around with different service providers. And they were facing challenges in meeting reporting deadlines, filing deadlines, ultimately resulting into fines and also reputational damage.

With CSC and our truly global platform, we were able to assist this U.S. fund manager in all these jurisdictions. With that, we have consolidated all these SPVs into our Entity Management portal. And the upside for our clients as well, if we are managing that many SPVs for a client, there's also a scale of economies, which in the end is also cost-efficient. But again, with our Entity Management platform, you have a single source of truth, and you're not missing any filing deadlines because we're able to automate a compliance calendar, for instance, in this management platform, which also gives you warnings or signals when you are up to a filing deadline in any of the jurisdictions.

So with all, the client was able to consolidate all of its SPVs with us, and in the end we are the business behind business. So the client was not losing or leaking any time on managing SPVs that was given to us and giving them more time to focus on what they actually should do, and it's keeping their LPs happy, of course, with a nice return of investment in the end.