How Hedge Funds are Saving Time and Money by Automating their Financial Statements
How Hedge Funds are Saving Time and Money by Automating their Financial Statements
December 2017
In 2017, CFA Institute reported that automating financial statements reduced the cost of producing these documents by 30%. Manually crafting financial statements is a difficult and cumbersome process, and the Hedge Fund industry is quickly moving to a more efficient automated model. Many of FinServ’s clients are automating their financial statements production and are reaping other benefits in addition to the cost savings. Fund Accounting groups that are still manually preparing financial statements should seriously consider implementing an automated solution. FinServ’s clients are investing automated financial statement systems for the following key reasons.
(1) There is a large number of capable systems available in the marketplace.

  • Command Financial CAPS, Donnelley Financial Solutions ArcReporting, IBM Disclosure Management, and Workiva Wdesk are financial statement automation tools.
  • These solutions originated from early EDGAR and XBRL filing requirements; however, there is growing adoption amongst more complex hedge fund managers for financial statement preparation.

(2)  Automated solutions transform a time-consuming process that is prone to human error.

  • Financial statement automation tools provide a cost-effective way for hedge funds to improve their operational controls and streamline the financial statement production process.
  • In a typical manual production cycle, Microsoft Excel workbooks are used to generate financial workpapers, while Word templates are populated using calculated numbers.
  • Each manual step is an opportunity to introduce errors into the process and risk is controlled by extensive reviews by internal accounting teams and external audit reviewers.
  • Automation of financial reporting frees your accounting team to perform more value-added work like insightful reporting and dashboarding.

(3) Automated solutions facilitate the standardization of your data at the source.

  • With these solutions, firms must adhere to a well-controlled data-driven set of processes designed to send structured data through standardized financial statement templates.
  • This reduces the amount of time required by users to review, approve, and publish final documents.
  • External auditors advocate in favor of automated solutions as proven solutions that save time and improve overall financial statement consistency.

Key Financial Statement Automation Product Benefits

Financial reporting software can help Hedge Funds to become more efficient, reliable and better equipped to handle future growth. The automation of financial reporting allows your team to focus on strategic value-added activities like evaluating new disclosure requirements, or preparing for specialized notes for new entity launches/liquidations. The marketplace for automated financial reporting solutions is rapidly evolving and the right solution for your fund is dependent on your unique requirements. There are few areas of benefit with these applications that every Hedge Fund should consider:

Features Core Benefits
Standardized Notes to Financial Text Libraries
  • Creates a standardized set of note language that may be reused across multiple fund financial statements. This improves overall consistency across an asset manager’s regulatory filings.
  • Shared changes made to a specific disclosure can be made once and flow through to all applicable funds, reducing the amount of time reviewing legal black-line document comparisons.
  • Notes can be dynamically linked to fund data using formulas-driven text snippets with the capability to include conditional logic for more advanced output capability.
Shared Document Output Templates & Calculations
  • Standardizes the way calculations are performed for all funds by creating a library of financial calculations, improving consistency and traceability.
  • Eliminates reliance on Excel by sourcing data directly from approved corporate data stores, reducing the risk of human error/manipulation.
  • Automates repetitive trial balance re-classifications/adjustments that occur in every reporting period.
Collaboration & Controls
  • Supports review workflows that can incorporate external audit teams, enforcing version control on financial statements as they pass internal and external review. 
  • The ability to define granular user rights and roles including maker/checker controls.
  • Proof statements, audit trails, and validation reporting provide end users with confidence in the straight-through processing performed by these tools from data sourcing to output via Excel, Word, and/or PDF format

Different Approaches to Consider

An in-house vendor implementation is not the only option for an alternative asset manager to take advantage of a financial statement automation product. Some fund Third Party Administrators (“TPAs”) offer financial statement preparation services using an automated software product; however, these services only make sense for managers with a low number of reporting fund entities (due to cost models of the TPAs for this service) and/or those who favor an outsourced back-office operating model. The graphic below provides a useful perspective based on cost preference and risk tolerance as to what solution your firm may be more likely to benefit from today.

Features Core Benefits
Standardized Notes to Financial Text Libraries
  • Creates a standardized set of note language that may be reused across multiple fund financial statements. This improves overall consistency across an asset manager’s regulatory filings.
  • Shared changes made to a specific disclosure can be made once and flow through to all applicable funds, reducing the amount of time reviewing legal black-line document comparisons.
  • Notes can be dynamically linked to fund data using formulas-driven text snippets with the capability to include conditional logic for more advanced output capability.
Shared Document Output Templates & Calculations
  • Standardizes the way calculations are performed for all funds by creating a library of financial calculations, improving consistency and traceability.
  • Eliminates reliance on Excel by sourcing data directly from approved corporate data stores, reducing the risk of human error/manipulation.
  • Automates repetitive trial balance re-classifications/adjustments that occur in every reporting period.
Collaboration & Controls
  • Supports review workflows that can incorporate external audit teams, enforcing version control on financial statements as they pass internal and external review. 
  • The ability to define granular user rights and roles including maker/checker controls.
  • Proof statements, audit trails, and validation reporting provide end users with confidence in the straight-through processing performed by these tools from data sourcing to output via Excel, Word, and/or PDF format

Different Approaches to Consider

An in-house vendor implementation is not the only option for an alternative asset manager to take advantage of a financial statement automation product. Some fund Third Party Administrators (“TPAs”) offer financial statement preparation services using an automated software product; however, these services only make sense for managers with a low number of reporting fund entities (due to cost models of the TPAs for this service) and/or those who favor an outsourced back-office operating model. The graphic below provides a useful perspective based on cost preference and risk tolerance as to what solution your firm may be more likely to benefit from today.

Conclusion

Automated financial statement preparation tools provide compelling cost and time savings while greatly enhancing data integrity in financial statements preparation processes. Fund managers looking to streamline their quarterly/annual production cycles must consider the automation options as soon as possible. Implementing a financial statement automation tool is a complex project that includes:

  1. Gathering/normalizing data from fund administrators
  2. Standardizing fund accounting business processes, and
  3. Managing vendor team resources.

Systems integration expertise is critical to the success of your financial statement tool implementation to maximize your funds overall ROI. To learn more about FinServ Consulting’s Systems Integration expertise and strong track record for delivering projects on-time and on-budget, please contact us at: info@finservconsulting.com or (646) 603-3799.

About FinServ Consulting

FinServ Consulting is an independent experienced provider of business consulting, systems development, and integration services to alternative asset managers, global banks, and their service providers. Founded in 2005, FinServ delivers customized world-class business and IT consulting services for the front, middle, and back office, providing managers with optimal and first-class operating environments to support all investment styles and future asset growth. The FinServ team brings a wealth of experience from working with the largest and most complex asset management firms and global banks in the world.