Fund Management: How to select the right provider in 2017
7 things to look for
by Jean-Luc Freymond, CEO of Sage Group SA
Fund Administration is an essential service that presents an increasing importance and sensitivity in the financial industry. Institutions offering this service bear mounting responsibility as a result of more complex pricing methodologies, taxes and fees, as well as stricter regulations.
Historically, such service has been organised in silos with many human resources involved, and it has been a widely-accepted fact that Net Asset Value (NAV) validation requires a high volume of manual work. At the same time, the industry is getting more competitive and the pressure to increase margins requires fund administrators to increase their productivity while continuing to fulfil their tight Service Level Agreements (SLAs).
Attempts to automate this system have often failed due to cultural and human obstacles as well as the lack of scalability and flexibility of the systems that were proposed. Organizations looking for systems to help them automate this process need to look for solutions that address both these issues by retaining simplicity in user interaction despite the complexity of the task while simultaneously providing the required flexibility to adapt to each fund’s specificities.
Reduce costs and risk
Generating Net Asset Values and unit prices is a time-critical process which requires a high degree of control and efficiency to meet pre-set deadlines. Only an effective end-to-end process with appropriate controls and automation can guarantee the consistent level of performance required.
The ability to keep the fund’s portfolio inventory up to date is a critical function to look for. While it is expected that most systems will perform this function, organizations need to ensure the adequate handling of all the asset classes that their funds are invested in.
Systems should also offer the possibility to automate and dramatically simplify the time-consuming and error-prone process of manually tracking, calculating entitlement, and processing of corporate actions. An integrated and comprehensive corporate actions solution that can process all corporate action types and is flexible enough to allow the definition of new types, is the best option.
Pricing of instruments
Pricing of financial instruments is a key process where systems differ in their level of efficiency and accuracy. Mark to market prices need to be fed automatically into the system from major data feeds. Quality and plausibility checks should be available to minimize the risk of errors and reduce the time to investigate pricing issues originating from the price source.
Fees processing and accrual accounting
Organizations should also ensure the system has the ability to automate the calculation, accrual, and posting of all types of fees. Performance fees are generally more complex and few systems fully automate more advanced functions such as equalizations.
A key step in fund administration is the reconciliation of daily trade information, settlement data, transactions, and positions. Systems need to be able to automatically download this data from the custodians and perform the reconciliation and highlight discrepancies.
NAV validation and publication
The transfer agency function also needs to be fully integrated in the system to simplify the process and avoid heavy and potentially costly interfaces. It should be possible to automatically import subscriptions and redemptions from external systems or capture them using the system’s UI.