The Assure Shutdown - A Case Study in SPV Provider Risk

In late November 2022, Assure, a once popular platform providing end-to-end SPV services in the US, announced its shutdown. This news left investors hanging high and dry, as many had already paid the lifetime management fees to the company, which it won't reimburse, and they will need to find a new partner to manage their active SPVs.

Good coverage of the background and customer reactions can be found here: https://techcrunch.com/2022/12/14/frustration-and-anger-after-spv-platform-assure-dumps-users-at-the-curb-ahead-of-holidays/

One of our founders also had money in an SPV managed by Assure and saw first-hand how the syndicate that had organized the investment struggled to find a new home for the SPV at a reasonable cost.

This is one of the key risks when choosing an SPV services provider - your investment vehicle will likely need to be maintained for maybe 6-10 years or longer, and during the lifetime, there is likely no liquidity; hence switching providers and paying extra is a losing proposition for owners.

What can you do to manage this provider risk?

1.   Understand who is backing and managing the business.

In the case of Assure, there was no larger entity behind the business - it was a private entity that built the company from scratch. This could mean that weak cashflows can easily lead to a collapse when funding activity dries up and cash stops coming in - as it has.

Providers working with larger organizations - such as Argo SPV, which partnered with Luther LLP for key parts of their services - have a significantly reduced risk of these scenarios happening, as fixed costs are minimal and a slowdown in activity means a slowdown in cost as well.

2.   Inquire about contingency plans in case of a shutdown

While most of us do not think about the risk of our SPV provider going out of business, the Assure case shows that it can happen. Therefore, you need to ask what will happen if the company shuts down and what a service provider transfer entails in terms of complexity.

3.   Don't put all your eggs in one basket

If you run a syndicate or regularly set up SPVs for other reasons, consider working with multiple providers for different vehicles. Of course, you want to keep complexity low, so this should not exceed three or four partners, yet having alternatives in case one shuts down is essential - if another company already has business with you, they will more likely try to help you take over the management of the SPVs the faltering provider had.

Don't just manage investment risk, but also provider risk

The case of Assure shows that service providers you rely on for long-term support can be a critical point of failure for investors, leading to additional cost, stress, and overhead. Managing provider risks smartly, by, e.g., following the tips above, helps you minimize your headaches and focus on what truly matters - finding and executing great investments.