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What are Special Purpose Vehicles?

Special purpose vehicles (SPVs)* are separate legal entities formed by an organisation for a specific business purpose or activity. They are distinct, subsidiary companies with their own assets and liabilities. They operate independently from the parent company. Many complex, multi-entity organisations find this type of additional business structure useful. That’s partly because SPVs can take on higher risks than a parent company and therefore attract new investors. At the same time, as the SPV operates independently, the organisation can mitigate financial risk by shielding the parent company and any other subsidiaries in the group. *They are sometimes known as special purpose entities (SPEs).

How does an SPV work?

An SPV is a separate legal entity. That means it has its own balance sheet and assets. Financial reporting and filings of financial statements are also managed separately to the main business.

In the past, the flexibility of SPVs has meant they were vulnerable to misuse. There were some particularly infamous cases around the time of the financial crisis. However, there are many ethically sound and financially responsible reasons for both large, established organisations and rapidly scaling companies to set up SPVs.

With effective risk management and appropriate transparency, SPVs can be highly beneficial investment tools. Read our blog about managing SPV accounting.

Why do companies use SPVs?

SPVs can be attractive options for business owners and investors for many reasons related to balancing risk with financial returns. In particular, they may be looking to:

  • Attract new investors, such as equity investors, lenders or hedge fund managers
  • Ease asset transfers
  • Form several SPVs to keep different projects independent
  • Isolate financial risk - SPVs are bankruptcy-remote entities, so any insolvency does not effect the parent company.

What are examples of Special Purpose Vehicles?

SPVs are used across many industry sectors. These include:

  • Private equity, venture capital and wealth management

Individual investors, trusts, limited partnerships, family offices and corporations may choose to set up an SPV. This could be to invest in a portfolio of start-up equity, real estate, alternative assets, or other relatively high-risk ventures or projects. They can be an effective way to raise capital and control risk while maintaining flexibility and privacy.

Find out more about how AccountsIQ’s Private Equity & Venture Capital Accounting Software can help manage a diverse portfolio of investee entities.

  • Renewable energy

Investment in renewable energy is soaring. But there are also significant political, regulatory and financial risks inherent in owning, developing and managing such complex, global operations. The early exploratory stages of the project are often the most risky and SPVs are one of the tools the renewable energy sector uses to mitigate and transfer risk.

Find out more about how AccountsIQ’s Renewable Energy Accounting Software helps renewable energy investors and operators manage a complex portfolio of SPVs.

Read our blog about why AccountsIQ is the finance system of choice for renewable energy companies.

  • Property management and real estate investing

SPVs can be set up to invest in and manage a diverse residential or commercial property portfolio. This arrangement can make it easier to raise finance and, in some circumstances, there are potential tax and other financial benefits.  SPVs can also provide more flexibility when it comes to future re-balancing of the property portfolio.

Find out more about how AccountsIQ’s Property Management Accounting Software provides effective oversight of property portfolio investments.

Are there any downsides to managing SPVs?

Finance teams tasked with managing a complex portfolio of SPVs face multiple challenges, including multi-currency and inter-company transactions. Business leaders and other stakeholders will also require consolidated group accounts and detailed, multi-dimensional management reporting to ensure they have the data they need to run their business and investment interests effectively. That can be a huge undertaking and is why AccountsIQ’s award-winning Cloud accounting software has rapidly become the financial management platform of choice for finance teams managing multiple SPVs.

“We adopted AccountsIQ’s financial management software because the key to successful commercial asset management is the ability to see KPIs at a glance and across the whole portfolio.”

Ray O’ Neill, CEO of renewable energy consultancy, Fincovi

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