How Ebury supported a pan-European private equity and real estate investment manager in improving its operational efficiency.

Background

The client is a pan-European private equity and real estate investment manager with operational real estate businesses like hotels, offices, and shopping malls across Europe. The group’s holding entities are based in Luxembourg with the operational entities based in countries across Europe. Several of the assets within the group are externally financed and the lease income is secured in favour of the external financiers. The investment manager is looking for a cross jurisdiction unified cash management provider in order to improve its operational efficiency.

Challenges and objectives

The client had three main objectives with its transactional banking setup:

Operational efficiency

The group worked with multiple banks to cover the jurisdictions the group is active in. Dealing with multiple banks created operational inefficiencies due to the duplication of reporting, access rights and compliance checks. In the case of intragroup transactions like loan repayments or upstreaming of dividends, having different banks as part of intragroup transactions caused delays, reduced efficiency and complexified the visibility of the total cash position of the fund.

Security over accounts and Escrow

Several of the assets within the group are externally financed and the lease income is secured in favour of the external financiers. For some of the real estate construction projects the group is involved in, escrow accounts are used in order to limit the financial risk taken by the investors. The group had an objective to leverage a single account provider across the secured and escrow accounts.

Optimising liquidity and FX risk

The main aim for the investment manager was to reduce fragmented pools of liquidity across different banks and jurisdictions and associated cash management inefficiencies by setting up a unified cross-jurisdiction cash management pool. To manage foreign exchange risk for assets in non-base currency, an FX hedging policy was set up to avoid the currencies’ volatility negatively impacting the return on the different real estate projects, increasing the ability to forecast for investors.

Ebury solution

Ebury opened transactional accounts for the holding companies in Luxembourg and the operational companies in Spain, Netherlands, United Kingdom, and France, acting as a cross-jurisdictional cash management provider. The key parts of the Ebury solution are:

• Single account provider across all entities of the group to ensure uniformity in reporting, KYC, and a single point of contact. This reduced the need for multiple banks across the group, allowing a consistent connectivity with the investment manager’s ERP.
• Local IBAN accounts in Spain, Netherlands, United Kingdom, and France for the operational entities to collect lease income and execute local payments.
• Unified cross-jurisdiction cash management with instant transfers between all group entity accounts to facilitate the pooling of liquidity, thus reducing transfer costs and optimising cash usage across entities.
• FX management policy to manage FX risk driven by the activities of the group in non-base currency. Setting up an FX hedging facility with long tenors to cover future asset disposals.
• Security on accounts. For the accounts where the main balances are held, Ebury acknowledged the security over the specific IBANs.
• Escrow accounts are set up for development projects  to build trust with the real estate developer and limit the financial risks taken by the investors.

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