Beyond Administration: How CSC Eases Operational and Compliance Burdens

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Caitlin: Hello, everyone, and welcome to today's webinar, "Beyond Administration: How CSC Eases Operational and Compliance Burdens." My name is Caitlin Alaburda, and I will be your moderator.

Joining us today are Marshall Saffer, Rhuaridh Watt, and Thijs van Ingen. Marshall is a strategic and operational business leader with demonstrated success in launching, growing, and managing software and services companies. Rhuaridh is a global commercial director with CSC's Corporate and Legal Services Market team, working with a range of corporate, fund, and family office clients to design solutions to manage their global portfolios. Thijs is the senior director and market leader for CSC's Global Subsidiary Management, GSM business based in Amsterdam. Thijs collaborates with global clients, prospects, and business stakeholders to shape CSC's product development, vision, and strategy for GSM. And with that, let's welcome Marshall, Rhuaridh, and Thijs.

Marshall: Well, thank you for that great introduction, and thank you all for taking the time to listen to the presentation. From an agenda standpoint, this is what we're going to cover today. We're going to start with a brief overview about CSC. We're going to discuss the macro trends and some market observations that we're seeing, challenges that GPs and LPs are having, advantages of a single provider solution, and we're going to end with some questions and answers.

So a little bit about us I thought might be of interest. We are a global fund administration, SPV, and corporate services provider. We right now service about 140 jurisdictions worldwide. We've got 8,000 employees. We are privately held, which I think makes us quite unique in the marketplace right now from an administration standpoint. And we service more than 70% of the top PEI 300 investment management firms.

So from a market statistics standpoint, we kind of pulled together some information that we thought the audience might find interesting. And I think if you look at some of these bullet points, we can all agree that the AUM just continues to grow, especially for private markets as you can see both on the chart as well as some of the fundraising data and in terms of the AUM growth for real estate, the AUM growth for private equity, and then things that have been driving the specific markets.

So if you read farther down, from a private equity standpoint in 2023, we find that the slowdown in deal activity reduced the upward pressure on the valuations, leaving a broad, attractive opportunity in 2024. From a real estate perspective, the rise in interest rates is definitely having its effect, right, with deal activity slowdowns as well as the reset of certain property valuations, especially on commercial real estate. And from an infrastructure standpoint, valuations have remained resilient in this cycle and seem to be agnostic to asset class and much more stable than the other asset classes or segmentations.

We pulled some information from Adams Street down below. So they had their market outreach report, and some three key facts is that 80% (sic) of the investors that they talk to agree that the private markets will continue to outperform public markets in the long run, that 88% also expect interest rates to be lower at the end of 2024, and 67% of investors expect to increase market deployment in 2024. I think that this just highlights the resiliency and the continued growth and opportunities that are in the private market space and the fund space in particular.

So building upon the prior slide, Rhuaridh and Thijs what are you seeing? What are your thoughts?

Rhuaridh: Thanks, Marshall. Great to be here today. I think it's fair to say that 2023 was a challenging year across the board, with high inflation rates, a complex geopolitical climate, and a decline in fundraising. Global inflation rates started the year at a 20-year high in many countries, and the news headlines were dominating the stories of rise in inflation in the first half of the year. Thankfully, towards the end of 2023, we started to see rates beginning to stabilize, and they now seem to have peaked.

There were also a number of significant geopolitical developments in 2023, including political tension between global powers and various major conflicts around the world. So, as a result, we saw continued supply chain disruption and a greater focus on energy stability and ESG. So these factors among others resulted in a tough fundraising environment for managers, with global fundraising down 22% from the previous year and hitting a 10-year low. The headlines didn't affect all managers equally, and larger managers fared well as investors fled to well-known names.

Thijs, perhaps you could give us some comments on the outlook for the rest of 2024.

Thijs: Yeah, thanks, Rhuaridh. Great to be on the on the panel in this webinar with you and Marshall today.

With regard to the trends for 2024, starting with inflation and interest rates, we believe that inflation is trending lower and has certainly peaked. So far interest is expected to be lower by the end of this year as well. That's what most market participants are expecting. A mild recession risk still remains though, something to watch out for. Overall, as economic growth, I think 2024 will be a year of stabilized growth.

Then when it comes down to the return on dealmaking, many challenges are still out there for the medium term. What we expect is probably a return to a more normal year in dealmaking. With that, I tried to sort of say continued growth for the private capital industry, but no explosion of growth is expected this year with crazy multiples we've seen in the past. Another trend we see in dealmaking and that is that most of the money that has been raised has really been raised by the biggest players out there. Twenty-five percent of the largest fund asset managers almost raised 40% of all the money that has been committed. It's those dominant players that will also dictate the dealmaking in 2024.

With regard to asset classes and the difference in it, private equity definitely we see different trends there. Buyout as a strategy is doing really well and has been pretty stable in its fundraising. Venture capitalist though has not been so successful in 2022 and 2023, and we expect that trend to continue this year.

Real estate receded in 2023. We've seen less activity in core and core plus type of strategies. On the other hand, we've seen more fund managers and investors interested in the opportunistic strategies. That tells me that capital appreciation is clearly being more valued at the moment than income generation. In 2024, in general, we expect deal volume to definitely pick up for real estate though.

Another asset class, infrastructure, which is always a long-term sort of investment, is therefore very resilient, it took a little bit of a detour in 2023. But we see LPs remain very interested in this asset class, and we expect investing will accelerate in 2024 and the years to come.

The final asset class I'd like to highlight is private credit. It continues to accelerate. It has helped this asset class that the interest rates have obviously gone up and that the banks remain pretty passive in their lending. And that has done really well for the private credit space.

Those are the trends I wanted to share with you on the year 2024.

Marshall: So now that we've talked about what we're seeing in the market and some trends, I thought we could kind of now focus on the portfolio manager and the GPs themselves and things that we're seeing and what we're hearing from our client base. I think it's becoming exceedingly more challenging to run a business, to grow a business, to maintain a business, and I think that these are some of the key points that we've been hearing from the market as well as of our clients.

So increasing business and operational complexity. Fund managers are investing in different asset classes, different business lines, different geographies, and different time zones, which are creating operational challenges of course.

There's the investor-driven reporting requirements that are being asked for, both by the LPs, by the SEC, and various other regulatory bodies around the world. You've got the regulatory requirements themselves from a compliance standpoint, which continue to add additional I don't want to call them burdens, but additional challenges as well as requirements. And then, ultimately, the data management component around all of this in terms of the systems used, getting the data, using the data, and being able to have access to data when you need it and how you need it and for the variety of different purposes you need it for.

So now, if we look at the specific problems around SPVs, we've discussed the fund managers themselves and what they're experiencing. But from an SPV standpoint, Rhuaridh and Thijs, what are you seeing? What are you hearing?

Rhuaridh: Thanks, Marshall. There's obviously a number of challenges facing our clients and fund managers across the board, the first one being the access to suitably qualified staff. As we've all seen in recent years with the Great Resignation and the quiet quitting trend, retaining staff has been a challenge across all industries. Our clients have told us that it's becoming increasingly difficult to hire staff with the sufficient experience to manage a global portfolio of entities, and therefore the responsibility tends to fall back to members of the legal and finance teams, who don't have the capacity to dedicate time in this area.

So one of the key factors driving increased workload for internal teams is the ever-changing global regulatory environment. Over the last few years, we've seen some wide-reaching transparency legislation introduced, including the EU's Fifth AML Directive and the U.S. Corporate Transparency Act, so both of which have introduced beneficial ownership reporting. Additionally, we've seen BEPS and ATAD 3 becoming an ever-present topic of discussion with our clients. So the volume and nature of the regulatory changes has proved particularly challenging for our clients as there's inconsistency in the approach adopted between jurisdictions and in some cases a lack of guidance on new laws, which make it difficult for our clients to stay ahead of regulatory developments.

Complying with the increasing economic substance requirements has also been a challenge that our clients have experienced. So with the introduction of specific reporting legislation in many jurisdictions and increased scrutiny by tax authorities globally, it's clear that demonstrating substance in the correct jurisdiction is extremely important. It's no longer the case that simply registering a company in a specific jurisdiction and having one board meeting per year in that country will be sufficient to meet the substance requirements.

Thijs, I don't know if you want to jump in on the other challenges.

Thijs: Yeah, thanks, Rhuaridh. I'd like to talk you through the bottom three frequently seen challenges around the SPV structures.

Dealing with multiple stakeholders in different jurisdictions. There's basically no way around for any client to work with different service providers. You need lawyers. You need tax advisors. You need auditors. You need banks. You need administrators, like CSC. I think when it comes down to the administrators out there that can help you with a wide variety of services, from incorporating your entity to do all your corporate secretary and accounting services, it's key to pick the administrator that has the global footprint and has the services each and every SPV in those jurisdictions need to sort of try to work with a one-stop shop solution when it comes down to your international portfolio of SPVs. I think that really is a challenge for a lot of our clients out there that, over time, have grown their portfolio of SPVs and ended up with different service providers in the different countries, which certainly from a reporting and a transparency point of view is not ideal to manage.

Next to that, you see navigating different regulatory requirements across multiple countries. We can't change the regulatory landscape. This is dictated by regulators locally or regionally. But again, working with one and the same global administrator that understands that regulatory landscape, keeps you up to date on the changes, and has the technology and entity management system to give you access in a portal to all your SPVs and the different regulatory requirements that are applicable to your SPV, that gives transparency and oversight, and that gives you a feeling of control and having that entire portfolio in good standing at any given moment with that carefully selected global administrator.

The last challenge is taxation changes. Again, if there's one killer in the industry, it's these countries constantly changing their tax regimes or rates or tax treaties. I mean, I see this over and over again. Clients, whether it's multinational clients or fund managers or asset managers, they just want to have certainty around the tax regime that is applicable to their structures. If there is uncertainty, we see clients moving from one jurisdiction to the others. At the moment we, for example, see that the Netherlands isn't very clear when it comes down to their tax sort of roadmap for the years to come. Luxembourg, on the other hand, is very open to this industry and very stable for this industry, with a very open and transparent tax regime that attracts a lot of the funds and asset managers in Europe.

Substance is another challenge. A lot of these structures that we're talking about today, the SPV structures are obviously dependent on substance that need to be in there to benefit from the tax treaties between the source country where the investment is and the SPVs above those investments. You need to select that global administrator that can not only help you keep the entities in good standing from a service point of view. You also need to select an administrator that can help you build real substance into these SPVs. And by real substance, I mean office space and human capital, that means staff, directorships. That's what this industry is having a need for today. And if your current service provider can't offer that, you really have to start looking for that global provider that is up to speed to the latest challenges the industry is facing here.

Marshall: We've talked about all the challenges. Let's talk about solutions. Thijs and Rhuaridh, why don't you address how we think the business should be approached and some of the better ways to address the SPV challenges?

Thijs: Let me start with that, Marshall. I think the first solution we at CSC offer is access to highly qualified teams that can scale up or down depending on the needs our clients have. The typical way we look at these SPV structures and certainly when they're medium to large size portfolio SPVs, we build a globally centralized team around it. But underlying that centralized team is the local knowledge of the teams in-country where these SPVs are housed. And these are trained accountants and trained company secretaries that are working 24/7 to keep these SPVs in good standing. The central team is there to communicate with the client and make sure the overall service delivery is at the level where the client wanted to be, but the underlying source countries where these teams are sitting, that local knowledge is absolutely key.

The second solution, that proactive approach on updates and any changes we see in the legal and regulatory landscape, I touched upon it earlier. It's very, very challenging for clients that are very focused on their investments obviously to also keep track and stay on par with all these changes in the legal and regulatory landscape. We have those experts in-house. We know in every country if there is a change, and we proactively keep our clients up to date on those changes. And we reflect those same changes against each and every SPV in the technology portal where we have all these SPVs housed.

The third solution and this is becoming more and more important, especially in the last years I've noticed, is working with one global service provider brings a lot of benefits to clients, this one-stop shop solution. They love to have one master service agreement to work with. One and the same terms of conditions in 140 jurisdictions is what CSC can offer. That is very different than working with different service providers in all these countries that all want to dictate their own terms and conditions upon your legal team as a client. So one service agreement, same terms of conditions, huge benefit. That one team, I mentioned it earlier, a centralized coordinating team, but still the local knowledge in the local offices with the team is another big benefit of working with CSC.

Rhuaridh, why don't you talk our audience through the last two solutions.

Rhuaridh: So pricing and fees is always front of mind for our clients. One of the key benefits of consolidating with one service provider is pricing certainty and transparency. So many of our clients don't have clear visibility on how much they're spending to maintain their global portfolio as it can be fragmented between different teams and the current service provider may be providing additional services, like legal advice. So it's very difficult to narrow down what you're actually spending to keep that entity in good standing. So at CSC, our aim is to provide a clear and transparent pricing and budget certainty to our clients. And as much as possible we want to work on a fixed fee basis. Our services can also easily be scaled up or down to cover any resourcing shortfall you might have.

And lastly, CSC Entity Management. So when you're responding to regulatory and tax changes, the first step is going to be to identify the initial requirements, like the registration or the initial filings. But maintaining the ongoing compliance is equally as important, including making the annual filings and maintaining relevant data. So this can all be done using CSC's Entity Management platform, which will act as your organization's single source of truth for regulatory reporting deadlines, information, and documents.

Marshall: So Rhuaridh and Thijs, I think that was a fantastic overview from a high-level standpoint. Now let's get into the details.

So at CSC, we believe in this concept of 360 degree global administration services. And what that means for us is that we can handle everything from the GP all the way down to the underlying investments. So we offer full AIFM, full administrative support for the general partner and investor management vehicles. We service the LP with investor relationship services and capital activity and everything that's required from a waterfall and distribution and investor reporting. As well as the fund, so we provide the administration, the accounting, the financial, the NAV, and depositary services if required.

Thijs and Rhuaridh, why don't you take it from here?

Rhuaridh: Thanks, Marshall. So at the next level of our typical structure, there'll normally be several SPVs across a number of jurisdictions, and we often see that the various branches of the SPV structure are managed by different service providers, which can result in challenges in service level consistency, reporting, and consolidation. So at the SPV level, CSC provides a full range of corporate services across key jurisdictions, including corporate secretarial services to keep the entity in good standing, as well as more extensive board support and local directors to assist with meeting economic substance requirements. CSC also provides a full range of bookkeeping and accounting, bespoke reporting, tax compliance, and cash management services.

Thijs, perhaps you can touch on what we can offer at the portfolio level.

Thijs: Yeah, happy to do so, Rhuaridh. So when we look at the private capital industry, obviously we have these different asset classes. We've got real assets, being real estate and infrastructure as an asset class. We have the private debt. But we also have the largest chunk, which is the private equity market. And it's that private equity market I'd like to sort of talk about in a little bit more detail.

When we have fund managers or financial institutions that have underlying portfolio companies that they invest in, a lot of the administrators out there, they sort of stop at the SPV level. That's where they help clients. They might also have their fund admin solution. But when it comes down to the portfolio company, that's where CSC can truly add value because we can offer our corporate solutions in 140 jurisdictions.

So we over the last five years already see a trend where a lot of our private equity fund clients are introducing us to the management team, the legal team, the tax team, the COO of the underlying portfolio company that might have a need for corporate services as well or keeping what they call subsidiaries of these portfolio companies in good standing. We can do that in 140 jurisdictions under one and the same master service agreement with the same terms and conditions that the fund manager sees at their level SPV or fund level. That really makes it a one-stop shop solution, and hence we call it our CSC 360 service offering.

Marshall: So Thijs, that was great. Now can you kind of walk us through the specific approach that we have?

Thijs: Yeah, happy to do so, Marshall. So when we look at the actual corporate services and SPV needs, or in the case of private equity and underlying portfolio company where the fund manager might introduce us to, these corporate services in today's industry are really defined what you see on the right-hand side of the slide here. So we as global administrator, we can help launch and incorporate, establish an SPV in any country where you as a client need an SPV. That is setting up the entity from A to Z, incorporate the entity, prepare all the corporate documents, file them online in our Entity Management portal as well as in our physical files in the offices we have.

And next to that, a lot of clients nowadays like to have us as director on board of their SPVs as well, either together with the client, or we're the sole director on these SPVs. That helps them and gives them comfort that the SPV will remain in good standing. And at the same time, in more tax-sensitive jurisdictions, we can help create substance into these SPVs. In particular jurisdictions, like Luxembourg and Singapore, the substance requirement is more stringent these days, and physical resident directorship services on the ground where the SPV is established really helps there.

Our core service really is our corporate secretarial services, the third bullet point on the left-hand side. This is really keeping the entity in good standing from a legal point of view. That is doing anything and everything that is statutorily required during the year. But at the same time, there's a lot of additional transactional corporate secretarial services CSC can help with, like dividend distributions, changing the composition of the board or the address. Any capital going up or down into the structure, that's where we can draft the resolutions for, and of course assisting with the physical board meetings, like circulating agendas, attending board meetings and taking the minutes.

Regulatory reporting and compliance services, that's the in-country knowledge we have. I mean, clients are relying on us to keep them up to date as to what is required for each and every SPV, and so we do that as one of our core services as well.

A lot of clients are also asking us to do the accounting and bookkeeping at the SPV level. That means bookkeeping at the end of the year, preparing and adopting the statutory financial statements. At the same time, depending on the reporting frequency of the fund, we prepare the monthly or quarterly management accounts as well.

And last, but not least, cash management. That is assisting clients after the SPV has been set up to also open up the bank account for that SPV, and at the same time helping them with any transaction as to being authorized signatories on their bank accounts, either on behalf of the client or together with the client.

Next to the day-to-day cash management of the SPVs, we also have a more exclusive treasury solution. Maybe, Marshall, you want to briefly touch upon our treasury solutions for the entire fund house?

Marshall: Absolutely. Thank you, Thijs. So what we've created is what we think is the most comprehensive cash management, cash forecasting, treasury, and expense management solution that's out there right now. So we can help a fund with gathering all the expenses dealing with cash flow management, dealing with the cash flow reporting, incorporate the regulatory reporting around expense management and allocation, as well as doing the wires as you said, Thijs. So there's a lot more that we can do. And I think it's going to be a great service and a great offering and a benefit to people that are out there.

So to follow up on what we can do and how we can do it, behind this is a very strong technology infrastructure that we leverage. Rhuaridh, how about you walk us through the backbone of our infrastructure?

Rhuaridh: Sure. So one of the most common practical challenges that we hear from clients is they are having difficulty managing the ever-growing volume of documents, data, and deadlines that are connected to their global portfolios. So CSC's Entity Management platform acts as your single source of truth for all data and documents linked to your portfolio. And the user-friendly interface allows you to store all relevant information and documents related to your portfolio. So that can include anything from UBO information to directors' passports. It also allows you to maintain an active list of signatories and directors for each entity, track filing deadlines across the portfolio. You can easily create structure charts, and you can carry out bespoke reporting on any data point within the platform.

The platform allows you to grant permission on a per-folder basis. Access to certain folders can be provided to different functions within your organizations or even to third parties as part of a due diligence exercise.

So if CSC is managing your portfolio, our teams will update the platform with any filing data and copies of documents related to the work that we're carrying out. But you also have the ability to use the platform to store any internal documents or data or deadline tracking.

So we offer Entity Management at a competitive annual fixed fee, which includes an unlimited amount of documents, an unlimited amount of users, and unlimited training.

Marshall: Rhuaridh, I think that was that was fantastic, and you made some very valid points and highlighted what we can do. I guess, in conclusion, why do people work with CSC, and I think on the screen we've laid out some pretty compelling reasons, right? It's so you as a firm can focus on your core capabilities. You're free to do what you do best. It's the ability to reduce costs. It's handling and dealing with the increased regulations and the demands for oversight. It's leveraging our industry experience and our expertise and our staff that we can bring to bear, and ultimately a very strong technology solution that you don't have to build out yourself.

Rhuaridh and Thijs, do you have anything you want to add?

Thijs: Yeah, happy to add a few things, Marshall. I think what we really see here and clients when they do their due diligence on their preferred administrator is that track right record, right? I mean, CSC group has a 125-year track record in the corporate administrative industry. We've got that global footprint in 140 jurisdictions, which not many other providers out there have. That comes together with that local knowledge we have in the offices, where we've got 8,000 staff globally, well-trained company secretaries, compliance regulatory colleagues, and accountants. And last but not least, Rhuaridh already touched upon it, is that topnotch technology platform we have, to have all these entities that we look after for our clients in one and the same system, where clients have a full viewing right and access to their entities and the latest data on each and every of their entities. I think that really sets us apart in this industry.