Why now? Market turmoil meet transparency
Certain portfolio management system software may not give the full workflow to the investor level, and some of the valuation and fee calculation possibly will be done offline. This is true, particularly around fees, which can be complex and need to be calculated at the investor level. Investor demands require greater transparency due to the recent history of market turmoil.
Alternative asset managers need to have that information readily available, in addition to being able to address a myriad of other pain points:
- HNWI expectations. Fund managers often lack the systems and reporting to provide granularity around performance that is expected by clients, especially for HNWI.
- Share class/ limited partner (LP) levels. Alternative funds want to shadow the fund administrator, but this can be cumbersome with daily funds, especially if they need to drill down to share class. Transfer agency systems can enable them to truly shadow the TPA at these levels while maintaining an audit trail that is part of an automated workflow, not a manual process.
- Manual processes. Alternative fund managers needing shadow NAV and performance fee calculation also need a fully auditable, automated tool or mirror administration that provides a certain level of comfort. This includes moving away from these error-prone manual processes to automated workflows with audited work. Additionally, there should be no offline calculation of performance fees.
- Client reporting. Alternative fund managers need the ability to provide better client reporting—from the investor level to performance fee, all while providing more granularity and full transparency.
- Performance fees. Many portfolio management systems do not have investor information, so a transfer agency or investor platform can enable managers to calculate fees at the investor level.
One way to help firms solve this is by combining solutions such as Linedata’s Mshare Allocations along with a portfolio management system like Linedata Global Hedge (LGH). Together solutions like these can enable managers to meet growing market and investor requirements for transparency and auditability in their in-house operations.
For example, if a fund shadows its administrator, Mshare Allocations provides highly accurate data and valuations without the headache of spreadsheets or other workarounds. It can take the P&L from an administrator’s accounting platform and integrate it with a firm’s portfolio management system to perform complex side pocket and investor equalization calculations and series of shares accounting with ease.
Together with Linedata Global Hedge, Mshare can provide an end-to-end solution for alternative funds wishing to perform their own shadow accounting. While portfolio management systems provide the fund level NAV, Mshare can work with LGH or another system.
Additionally, fund managers should look for solutions that, like Mshare, provide share class level and partnership level investor accounting via their allocations module. This can deliver streamlined solutions for hedge fund investors that want daily P&L but would have previously required lengthy, manual spreadsheet competitions. Without it, these can involve onerous amounts of work, be prone to manual errors, and, in the end, only manage a handful of share classes. Mshare can also include performance fee calculation.
True transparency and NAV validation
The value to alternative managers of an in-house system that efficiently produces accurate NAV validation along with the right level of investor reporting became even more apparent as the pandemic developed when firms realized what had to be done to advance and streamline these processes. In other words, with regulators and investors exerting more pressure, the time of the spreadsheet has passed because manual processes and lack of transparency are a risk in 2022 and beyond.
These are steps alternative fund managers can take to provide a clear-eyed view of NAV validation and investor level reporting, especially for those looking to price at share class level and partnership level; enable performance fee calculations; and move away from manual processes, all while increasing the level of client reporting.