Still confused about the difference between SPVs and SPACs?

We sometimes get asked by potential investors for clarity regarding these two alternative asset structures, so please read our article which we hope will provide answers for those new to investing, especially in Private Equity portfolios.

What is a SPV?

A Special Purpose Vehicle (SPV) is a business entity that has a special limited purpose. They are often established for holding specific assets in connection with a secured financing transaction, or when certain assets are required to be separated from other assets. SPVs may be consolidated for GAAP* purposes depending on the facts and circumstances of the arrangement.

A SPV is also sometimes referred to as a special purpose entity (SPE) and is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligation secure even if the parent company goes bankrupt.

Key features and benefits of a SPV:

• It opens opportunities to investors that would not ordinarily be available
• The structure provides flexibility and simplicity
• It allows access to a separate underlying pool of assets
• Gives investors the chance to choose specific investments

The SPV has become a popular way to invest in recent years.

SPVs are a great way to get started as a new investor.

What is a SPAC?

SPACs or Special Purpose Acquisition Companies are a fairly new phenomenon in financial markets and have only existed in their current form since the early 2000s. They were originally developed as an alternative to traditional acquisition vehicles due to their ability to raise capital through the public equity markets. They were formed for the purpose of acquiring one or more operating companies in a particular sector and are an attractive vehicle for private equity managers to seek public capital for targeted acquisitions.

Key features and benefits of a SPAC:

• Investors will receive an equity interest according to their capital contribution
• Allows early access to/into exciting companies
• Can give an option to redeem shares if investor is unsure of the investment

SPACs have historically been rare but have become more popular in recent years, especially in 2020 where as many as 40% of all funds raised by new listings were raised using SPACs in the US, with over $48bn raised. [1]

SPACs can be an excellent way of investing in a turbulent market.

2020 was certainly the year of the SPAC.