For any hedge fund or alternative asset manager, the day starts with reconciling positions, cash balances and transactions amongst internal portfolio accounting systems and external counterparties, including prime brokers, custodians and fund administrators. At its core, this daily task is operationally complex, making the use of manual Excel-based processes inefficient, error-prone and a drain on overall productivity. Due to this complexity, along with the fact that managers have to routinely deal with high transaction volumes and esoteric instruments, many are now seeking solutions that systematically analyze the root cause of repetitive exceptions, automatically escalate aging exceptions, establish multi-level approval workflows and ensure a robust audit trail of all actions.

With that being said, establishing a simple and unified reconciliation output across funds and brokers is emerging as a critical requirement for asset managers, and it can be done by implementing a solution to perform the below set of core processes and steps:

  • Data Retrieval – Reconciliation starts with an influx of data, including EOD positions, cash balances, transactions, tax lots, reference data and security data. It’s important to note that reconciliation systems should be data agnostic, meaning they are not limited to these datasets and can reconcile any data the fund deems important to the process. Due to the fact that data importation is typically an automated process, most counterparties cover direct connectivity to web portals where data can be downloaded through a “self-service” model. Reconciliation systems can also use standard APIs or SWIFT protocols to retrieve the data. However, not all hedge funds have access to SWIFT, either because the settlement process is outsourced or the shop is too small to justify the expense.
  • Validation – This step ensures the accuracy and integrity of data by determining its nature (or financial/accounting role) and establishing its relationship to other datasets.
  • Transformation and Enrichment – The data is further transformed or aggregated so that it becomes reconcilable.
  • Matching – This is a hub of the reconciliation system that separates matches from exceptions. Its two most important aspects are how it reconciles (reconciliation keys) and what it reconciles (reconciliation attributes).
  • Risk Management – A vital aspect for controlling operational risk as it not only makes the process tighter but strengthens it with built-in checks and balances.
  • Analytics and Reporting – This step assesses operational risks and increases efficiency by discovering the cause of specific breaks, how to improve straight through processing percentages, amongst other strategic objectives.

Using IVP Reconciliation Solution, asset managers can harness the power of automation to drastically simplify the reconciliation process while simultaneously increasing efficiency, accuracy and overall flexibility.