From Legacy to Leading Edge: Enhancing Efficiency in Hedge Fund Reconciliations

For hedge funds, operational efficiency is critical for maintaining a competitive edge. Recently, a New York-based global alternative asset manager faced significant operational challenges due to its reliance on an aging legacy reconciliation system. This blog explores how the firm overcame these hurdles by implementing the IVP Reconciliation Solution and IVP Managed Services to streamline reconciliation workflows and enhance business value.

Legacy System Challenges

The firm’s legacy system, which was used to perform daily reconciliations for private investors, middle office teams, and transfer agency divisions, was fraught with inefficiencies, including:

• Reporting and data visualization: The outdated system lacked robust reporting features, making data analysis and visualization difficult.
• Exception management: Handling exceptions was inefficient with no standard processes.
• User onboarding and experience: A complex user onboarding process led to high attrition rates and an increased demand for training.
• Manual month-end closings: The month-end closing process was inefficient, relying heavily on manual workflows that lacked an audit trail.
• Complex product reconciliation: Reconciliation for complex OTC products lacked standard identifiers, making it extremely error-prone.
• Rising operating costs: Costs associated with new fund launches and counterparty onboarding were increasing.
• Repetitive breaks: The firm struggled to identify the root cause of repetitive breaks due to an overall lack of visibility.
• No real-time exception visibility: The lack of real-time visibility for exceptions caused delays.

All of these challenges significantly compromised the firm’s operating costs and efficiency, prompting the need for a more powerful and comprehensive reconciliation solution.

Implementing the IVP Reconciliation Solution

To address these challenges, the firm implemented the IVP Reconciliation Solution, an automated, cloud-based reconciliation solution supported by IVP Managed Services. This strategic move transformed the firm’s reconciliation workflows with numerous capabilities, including:

• Optimized month-end workflows: The IVP solution introduced automated multi-level approvals and robust auditing, making the month-end closing process more efficient.
• Parallel processing: Both “as of month end” and “as of daily” runs now occur simultaneously, reducing duplicate efforts.
• Advanced AI and machine learning: AI and machine learning automatically categorize breaks and offer suggestions for resolution, prioritizing complex data sets and vague identifiers.
• Automated break assignment: Breaks are automatically assigned based on categorization and prioritization rules to streamline the process.
• Outsourced break analysis: IVP Managed Services handles all break analysis and status reports, ensuring reports are delivered before the start of the day in the New York office.
• Timely reconciliations: Most reconciliations are completed well before the U.S. market opens, enhancing operational readiness.

Achieving Tangible Benefits

The IVP Reconciliation Solution and IVP Managed Services delivered impressive results:

• Headcount management: The firm avoided the need to add headcount for reconciliations, even after a significant increase in reconciliation workload.
• Reduced TCO: The total cost of ownership for reconciliation workflow was reduced compared to the legacy system, driven by enhanced efficiency and minimized user intervention.
• Faster results: With IVP Managed Services leveraging time zone advantages for quicker turnarounds, the firm experiences much faster reconciliation.
• Higher efficiency: The firm experienced a 20% efficiency improvement running reconciliations from scratch.

 The success of the IVP Reconciliation Solution highlights the power of automation to overcome operational challenges. By embracing advanced technology and outsourcing operational functions, hedge funds can not only streamline workflows but also achieve substantial cost savings and efficiency gains. This case study also underscores how important it is for hedge funds to innovate continuously in order to maintain a competitive edge.