After 25+ years in the buy-side investment operations business, I still see investment managers face this major obstacle: Efficiently reconciling their trade and investor accounting data against their fund administrator’s data.
Reconciliation plays a key role in shadow accounting because it ensures the fund administrator’s trading records (transactions, positions, cash balances, NAV, total equity, and P&L) match those of the investment manager or hedge fund. Reconciliation is a critical first step towards maintaining an accurate accounting of the fund's financial picture and helps uncover and resolve trade breaks before they turn into larger problems.
Here are my top five reasons why reconciliation is so important to shadow your fund administrator:
Instills confidence
Reconciliation helps guarantee the fund's books and records are accurate. When investment accounting data is correct, you can demonstrate the fund's performance and other information can be trusted.
Provides compliance and regulatory safeguards
Reconciliation is also important for ensuring compliance with regulatory requirements. Reconciliation allows you to monitor the fund's compliance with laws and regulations that confirm the fund is operating both legally and ethically.
Helps control risk
Reconciliation is a critical part of a firm’s risk management as it helps to identify and correct discrepancies in the fund's books and records. By performing reconciliation daily, you can reduce the risk of loss while protecting the fund's assets.
Increases transparency
Reconciliation helps to promote transparency and accountability within the fund. By reconciling the fund's book and records with those of your fund administrator, you can give your stakeholders and investors a clearer view of the fund's financial situation.
Supports decision-making
Reconciliation helps provide the information firms need to make informed decisions about the fund's operations and management. Having accurate information about the fund's financial picture allows you to think critically about the fund’s future including changes to investment strategy, fund domiciling, and counterparties.
Enhancing investment fund management
Reconciliation is a critical part of shadowing your fund administrator and provides many important benefits for investment managers. By ensuring the accuracy and completeness of the fund's books and records, you can ensure compliance, improve risk management, increase transparency, gain better information for decision-making, and make investment fund management more effective.
Contact us to learn how Gresham helps investment managers resolve the challenges of fund administrator shadow accounting.