- Below is an overview of what SPVs with compartments or cells are and how they differ from standalone SPVs.
- This information is aimed at asset managers looking to design strategies using structured vehicles to meet different objectives.
- FlexFunds offers an asset securitization program through an SPV domiciled in Ireland. For more information, please feel free to contact our experts.
Special Purpose Vehicles (SPVs) are widely used entities in the field of structured finance. And within this specific segment, SPVs with compartments or cells (cell companies) stand out for the clear advantages they offer.
Structure of an SPV with compartments: Operational and legal fundamentals
An SPV with compartments or sub-funds is a single legal entity containing multiple internal substructures.
The key point is that each cell operates autonomously, with its own assets, liabilities and financial flows, and remains isolated from the other compartments held within the SPV.
These SPVs are designed so that each compartment has legally separated assets and liabilities, as long as such segregation is detailed in the bylaws and aligned with the regulations of the jurisdiction of domicile.
Operationally, each compartment within an SPV has its own portfolio of assets and liabilities, separate financial statements, and its own group of investors.
Additionally, although management may be centralizedâwith the same administrator, auditor, and trusteeâcells can and often do differ from one another.
Within the financial industry, SPVs with compartments or cells have two main common applications: asset securitization and investment funds.
Asset securitization
First, these structures are used for the securitization of assets. Through this processâcarried out by companies such as FlexFundsâa pool of assets, liquid or illiquid, is transformed into bankable assets with their own ISIN/CUSIP codes.
With SPVs containing compartments, each cell can encompass a specific set of assets (equities, bonds, loans, currencies, commodities, investment funds, etc.). This allows asset managers to achieve greater efficiency and flexibility.
Investment funds
SPVs with cells are also used in the investment fund industry, whether conventional or alternative.
In this case, each compartment would represent an investment strategy, asset class, or region, allowing for greater customization without redundant legal burdens.
Regulatory, tax, and governance implications
As highly sophisticated products, SPVs with compartments or cells carry several important implications:
Regulatory
Supervision of this type of SPV varies depending on the jurisdiction and the nature of the vehicle. Governments require clear documentation of the compartments and explicit detail on the segregation of assets and liabilities.
Tax
As with any SPV or structured vehicle, tax considerations are essential. In some cases, each cell is treated as a transparent entity, meaning that profits and losses pass directly through to investors.
Governance
Lastly, the parties involved in structuring an SPV with compartments must select an appropriate management team capable of ensuring the independence of each cell. For this reason, a suitable supervisory board is also required.
SPVs with compartments vs. standalone SPVs
SPVs with compartments differ from standalone SPVs in several essential aspects:
| SPV with compartments | Standalone SPV | |
|---|---|---|
| Structure | A single legal entity with multiple internal cells. | Multiple separate legal entities. |
| Cost | Lower cost by relying on one entity. | Higher creation and administrative costs due to multiple entities. |
| Flexibility | More flexible since there is only one set of bylaws. | Less flexible because each new operation requires creating a new structure. |
| Insolvency risk | In both cases, insolvency is not shared across strategies. | |
| Purpose | Typically used for multiple purposes, such as different strategies within a single fund. | Usually has a single purpose, such as a specific securitization. |
In the case of FlexFunds, the SPVs used for asset securitization are domiciled in Ireland due to the many benefits this jurisdiction offers.
In addition, FlexFundsâ cost-efficient solution is accompanied by a comprehensive service that includes:
- Stock exchange listing.
- Fund accounting.
- Back-office services.
- Net Asset Value (NAV) calculation.
- Corporate administration services.
To learn more about FlexFunds and our asset securitization process, you may contact our team of experts. We will be glad to assist you!
Sources:
- https://ganado.com/the-maltese-securitisation-cell-companies-regulations-an-overview/
- https://www.webberwentzel.com/News/Pages/venture-capital-investment-structures-in-mauritius-protected-cell-companies-and-variable-capital-companies.aspx
- https://www.zestequity.com/blog/what-is-an-spv
