1. Small to mid-size funds did not want a full shadow with their administrator
2. Often relied on their Admin, or PB’s systems and spreadsheets to reconcile their NAV at a high level

Even our smaller clients are moving to shadow accounting for multiple reasons:

• Increasing demand for quicker reporting on their P&L
• Many admins do not, or cannot provide T or even T+1 reporting
• In order to more effectively analyze their portfolio, calculate management or incentive fees, or reconcile their cash balances in an automated way

1. Security master tagging done at the OMS level
2. Third party vendors needed to meet regulatory filing requirements

Investor Demands

• Increased regulatory pressures and more reporting requirements being provided by the regulatory agencies
• Funds feel the need to have direct access to their fund data, to manage the costs of the reporting requirements and feel a higher level of confidence in the integrity of the reported data

1. Over-reliance on Excel to perform Portfolio Reporting
2. Overly complicated workbooks with a spider web of macros and code and key man risk for the one person who built the macros and code
3. Huge Operational Risk – When FX rates are entered, a simple key stroke error can have a massive impact on the P&L that is reported

Leveraging a portfolio accounting platform to reduce operational risk by interfacing directly with market data providers, brokers and counterparties

• Automated Reconciliations – ensuring data in the system is consistent with the street, and the third party administrators
• Eliminating manually keyed in balances for recs, or manually check broker statements

1. Funds were forced to take a best of breed approach due to lack of systems with true front to back end capabilities
2. Separate systems for:
   > Portfolio Management
   > Order Management
   > Fund Accounting
   > Lightweight Risk Management
   > Reconciliations
3. Created large reconciliation requirements between the systems and the street
4. Inconsistent reporting due to overlapping data and reports in the different systems

The new software companies are offering a true straight through processing (“STP”) experience that allows a fund to go from the front to back office with one system.

Support true Portfolio Management System capabilities including tagging at the trade and security level for P&L and exposure reporting

Pre and Post trade compliance capabilities are now an out of the box feature of most of these systems

Key Advantages of 1 system – Front to Back

• Large costs savings from central reporting
• Eliminate the majority of reconciliations points
• Eliminates the need for multiple interfaces between disparate systems
• All employees from traders, analysts, operations and finance can ensure they are reporting consistent information using the same tagging and pricing sources
• Orders are entered and their financial impact is reflected real time within the financials
• Expensive market data feeds like Bloomberg SAPI can be leveraged with one license, which could provide material savings

A Long / Short Equity shop with over $2B AUM was looking for a shadow accounting solution that would allow for daily reconciliations with its Third Party Administrator’s (“Admin’s”), Prime Broker’s (“PB’s”), and Counterparties and would provide day T+0 reporting to assist with portfolio exposure analysis and same day P/L analytics.

The existing process included manual daily reconciliations consisting of logging on to websites, manually transcribing position, market value, and cash balances and comparing these records to the Admin, the street and internal records.  This process was error prone, time-consuming and placed a huge reliance on their fund administrator.  If new counterparties were added, it compounded the issue and placed an undue burden on the fund accounting and operations staff.

The fund began looking for an in-house portfolio accounting solution that would not only allow for a full shadow, but could assist with the reconciliations and reporting requirements.  The fund contracted FinServ to assist with the selection.  The requirements called for a solution that could be hosted to reduce the burden on the limited internal IT support staff.  The system also needed to be capable of supporting asset classes including CDS, CMBX, TRS and several Fixed Income products.  In addition, the fund anticipates expanding its asset class to include Bank Debt and other Credit positions in the near future.  The system also needed to be integrated with their existing OMS, downstream reporting software and potentially a future treasury, data warehouse and risk application.  FinServ documented the existing infrastructure and created future state diagrams depicting the optimal end state.  FinServ conducted multiple interviews with the fund operations and accounting staff to understand the key user requirements and current pain points.  After a thorough selection, which included a detailed cost analysis, the fund and FinServ selected Enfusion’s Integrata Fund Accounting solution.

FinServ and Enfusion took the lead to setup the fund’s structure, load opening balances and connect with the Order Management System (“OMS”).  The fund’s admin, prime broker and several counterparties were interfaced directly in the system and reconciliation functionality was established to highlight differences with cash, market value and position data.  Financing agreements were established for each unique Swap to automate the daily financing accrual.  In addition, Bond interest, Dividend and other automated interest entries were established.  An interface with Bloomberg Data License was put in place so prices could be snapped throughout the day.  Positions and Cash balances were reconciled with the Fund Admin’s NAV packs.

Trade data received from the OMS is reconciled daily.  Reconciliation activities which used to take hours each day are now automated.  Breaks are identified immediately and remediated.  Reporting is now available the same day and includes daily calculations that were previously only accessible at month end.  In addition, wash sales and other tax lot reporting is more accessible and allows for more informed trading decisions.

Future phases will see Enfusion feeding the OMS with start of day positions and feeding downstream reporting applications which are currently fed by the administrator.  Enfusion was the right choice for this fund which is enjoying greater flexibility, increased accuracy and quicker access to data.