Fund Directions - What To Know About Investing in Special Purpose Vehicles (SPVs)

What To Know About Investing in Special Purpose Vehicles (SPVs)

David MahleFund Directions spoke with David Mahle, partner at Jones Day in New York, on what directors should know about investing in special purpose vehicles. Investing in these instruments is common for funds across the board. "On the money market side, when funds are buying asset-backed commercial paper, or bond funds buying asset backed securities - they are all in SPVs," Mahle said.

The recent downturn in the credit markets have been putting many of these vehicles under stress. Mahle points out investing in these vehicles benefits shareholders by providing terms and conditions not always available in other parts of the market. "But the downside is it is not necessarily tied to a financial institution you can look to for payment" if it starts to fall in value, he said.

The follow are seven things Mahle says directors should know about when overseeing a fund investing in SPVs.

1. Organization. SPVs can be organized in the U.S. or in a recognized offshore jurisdiction (e.g., Caymans, Isle of Mann, Luxembourg or unfamiliar offshore jurisdiction), but jurisdictions outside the U.S. may not have the same protections for investors. "Places such as the Cayman Islands have similar protections for investors but you have to take pause if you have an SPV from a Pacific island no one has ever heard of," Mahle said. Directors can also ask whether a segregated portfolio company (SPC) is permitted under local law. An SPC permits securities programs that issue on a repetitive basis ...

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What To Know About Investing in Special Purpose Vehicles (SPVs)