Hedge funds are leveraging shadow accounting to gain benefits beyond verification and validation by employing new technologies and data capabilities that enhance business intelligence. Outsourcing with an expert partner can offer additional advantages to a variety of internal teams.
The role of shadow accounting in Fund Management
Shadow accounting offers fund managers access to a range of capabilities critical to global fund operations. Both investors and allocators are demanding greater transparency and reporting, and shadow accounting helps meet their expectations. Outsourcing to a trusted partner allows funds to meet growing expectations without adding to headcount or infrastructure. It also offers further benefits that enhance operations and decision making.
Shadow accounting has moved beyond aggregating information from multiple administrators or calculating fund values. One of the greatest values of shadow accounting is the ability to provide an accurate inventory of data for a portfolio manager’s data warehouse. This data warehouse, built with significant investment of time and resources on the manager’s part, contains the hedge fund’s trade data in a relational database that enables powerful analysis.
The healthier and more flexible the data inventory within the warehouse, the more useful and reliable it becomes as an intelligence tool. To implement warehousing internally, a manager requires a steady flow of reliable information as well as the flexibility to adjust it in-house with full control of the books and records.
Enhancing data management with Shadow Accounting
When hedge funds apply business intelligence tools to their data warehouses, they gain a better understanding of their cash and collateral positions, can see where to finance trades, and much more. They turn data into customized information that is then integrated into daily operations.
Maintaining high-quality data in the data warehouse allows hedge funds to catch errors made by traditional fund administrators or prime brokers. Hedge funds win when their outsourced shadow accounting firm can tell them swiftly when a trade is broken. Without that kind of service, it could take two to three days to get the information. With the outsourced shadow accounting firm, reporting is cyclical, customized, and swiftly produced for better business and investment intelligence.
Leveraging outsourced shadow accounting for growth and efficiency
A good outsourced shadow accounting firm supports the fund’s growth. When a fund manager wants to diversify by adding a new market, currency, or prime broker, they can rely on the expertise its shadow accounting firm has developed in those areas while working on behalf of other clients. The hedge fund doesn’t have to do its research from scratch, learn through painful trial and error, or develop new staff and systems.
Using an outsourced shadow accounting firm allows hedge funds to take advantage of the economies of scale offered by a shared platform. The service provider invests heavily in operations, with costs spread across multiple clients. Outsourcing negates the need for the fund to invest in infrastructure, software, ongoing integration, and other technology projects.
Outsourced shadow accounting also helps hedge funds with business continuity planning and disaster recovery. In the event of a problem, hedge funds working with an outside firm don’t have to rely solely on their fund administrators to safeguard their data, because the data is also available from the shadow accounting firm. Such redundancy reassures investors, helping hedge funds shine during institutional due diligence.
If you’re ready to improve your firm’s business intelligence and operational efficiency, it’s time to consider outsourced shadow accounting. Find out more in our latest insight report about enhancing operational efficiency through outsourcing shadow accounting. Download now.
