Precise reconciliation of accounts, positions, cash balances, transactions, NAV, and more gives asset managers the data they need to make smarter trade calls.
It is a truism that the better the input, the better the output. In fund management that means the more detailed and accurate the data at a manager’s disposal, the better their investment decisions are likely to be.
The source of much of that information is the fund reconciliation process.
When managers make a trade call, they must trust the information they’re basing it on. Their decisions on what to buy, how much to invest, and what to sell rely on the authority of the regular portfolio reports provided by reconciliation teams.
As our new report on integrated reconciliation shows, if the data in those reports is inaccurate or incomplete, that decision-making process will suffer. And that’s not all. Managers are under more pressure than ever from regulators and investors, who require the highest levels of transparency and accuracy. Limited partners (LPs) also expect more frequent reporting on portfolio performance, regardless of asset class or fund strategy.
For all these reasons, the accuracy of data is essential. However, reconciliation teams too often must work with flawed or incomplete data sets and have little time to properly investigate the cause of errors and breaks.
In these areas, an optimized and integrated reconciliation process can make a difference.
The dilemma of data in fund reconciliations
The main challenge for reconciliation teams is often the quality and consistency of data from brokers and other external sources.
Data can arrive in different formats, which makes its integration into reconciliation systems complicated and time-consuming. Dealing with diverse data formats and varying levels of detail poses a significant challenge for reconciliation teams.
Indeed, ensuring accurate results in reconciliation processes requires a careful approach to formatting data, filling in gaps, and maintaining data integrity. Reconciliation teams need to be able to fill in the gaps without tampering with the source data—and going back to the source if necessary.
But these tasks are challenging. Investigating the source of reconciliation breaks is a complex task that requires a combination of experience, focus, and the right tools.
How to ensure accurate reconciliations
Given the potentially serious consequences of supplying investment managers with unsound information, how can fund accounting teams make sure data is as clean and complete as possible?
The answer is to optimize reconciliation processes through integration and automation. Data needs to be formatted for digital workflows and then run through rules-based processes that verify and reconcile data, while reducing the need for inefficient and error-prone manual handling.
If data is incomplete, that needs to be acknowledged and highlighted. When breaks happen, an integrated process can give human experts the time they need to prioritize finding and fixing the source of the error.
Given this time, experienced teams can often catch data inconsistencies before they creep into reports, thereby resolving breaks quickly. They know how funds and assets behave and can almost instinctively identify unusual activity. The teams can also spot trends in data that might indicate an error before that information is passed on to asset managers.
Increasingly, asset managers know how important this work is as they seek competitive advantage in a crowded market. We know from our own experience as outsourced reconciliation specialists how seriously fund clients take the efficiency and accuracy of reconciliation processes.
During proof-of-concept trials, asset managers often include erroneous or incomplete data sets to test our systems and ensure that we identify the problem and handle it appropriately.
They do so because they know that data accuracy is essential to the effectiveness of modern fund management. Good data improves decision-making and allows managers to be confident in their investor and regulator relations.
To find out more about the benefits of integrated reconciliation, download our new report.
Why CSC?
CSC provides tailored administration and strategic outsourcing solutions to support the complex operations of alternative asset managers across jurisdictions and asset types while adhering to global regulations and compliance. A market leader working with funds of all sizes, we’re the trusted partner of choice for 90% of the Fortune 500® and 70% of the PEI 300. Privately held since 1899, CSC is a global company with capabilities in more than 140 jurisdictions. We’re capable of doing business wherever our clients are by employing experts in every business we serve. We are the business behind business®. Learn more at cscgfm.com.