The Hidden Costs of Spreadsheets in Investment Data Management

Investment management is a complex, data-intensive field. With the growth of private market funds, there has been an explosion in the amount of data that needs to be collected, managed, and analyzed. In this growth phase, many investment managers are turning to one of the most common tools in investment data management: spreadsheets. While spreadsheets offer an accessible and intuitive approach, they also come with hidden costs that can compromise an investment management firm’s performance.

Multiple recent studies indicate that the vast majority of spreadsheets — 88 percent in some cases — contain “significant” errors.¹ These errors inevitably put investment managers at risk of costly financial and reputational damages. In this blog, we will explore the hidden costs of using spreadsheets for investment data management.

Excel errors causing industry disasters

Unfortunately, manual data entry in spreadsheets is responsible for several well-known industry disasters. One of the most famous is the London Whale Scandal of 2012 when JPMorgan Chase lost more than $6 billion. The loss was attributed to risky trading strategies caused by manual data entry errors in a spreadsheet that led to mismarked positions in the bank’s trading books.^2,3

Spreadsheets may seem like a convenient and cost-effective solution in the short term when working with a limited number of deals. But as the number of deals increases, so does the complexity of managing the data, leading to manual errors, limited data analysis, and increased operational risks. In addition to these risks, there are several hidden costs to consider:

• Data integrity: Spreadsheets are vulnerable to human errors, data entry mistakes, and accidental deletion. This may result in data integrity problems that are difficult to find and fix. These errors can lead to poor investment decisions and missed opportunities.
• Lower productivity: Manual data entry in spreadsheets is time-consuming. It can lead to delays in reporting and decision-making, both of which reduce productivity, increase costs, and limit the ability of investment management firms to take advantage of opportunities. Spreadsheets are often used as a temporary solution. But as investment management firms grow and data management needs become more complex, they are often left in place permanently.
• Limited scalability: Increased growth and complexity make spreadsheets less effective. Over time, managing larger portfolios with spreadsheets requires more personnel and technological resources, adding to operating costs and decreasing overall efficiency.
• Security risks: Spreadsheets are often shared through email, public file-sharing services, and other insecure methods, all of which are vulnerable to security risks. Spreadsheets that contain sensitive investment data can be accidentally shared or accessed by unauthorized parties, leading to data breaches that are costly to resolve.
• Compliance risks: Investment management firms are subject to a wide range of regulations. Spreadsheets make it difficult to track compliance and demonstrate adherence to these regulations, which can result in fines and legal penalties.

Eliminate spreadsheets with automated solutions 

Although spreadsheets can be a useful tool for managing investment data, their hidden costs outweigh the risks they pose to investment management firms’ performance. So what is the alternative? Automated investment management software.

Many automated solutions are now available for investment data management. Automated portfolio management, a centralized data warehouse, portfolio monitoring, and portfolio data management are just a few of the key features of these solutions, which can help investment management firms move on from spreadsheets and eliminate the risks they pose.

IVP for Private Funds is one such solution. It is a comprehensive front-to-back solution for private funds that enables fund managers to enter data once and track it throughout the trade lifecycle with complete transparency. It provides the automation investment management firms need to reduce operational risks, improve efficiency, and perform complex data analysis, making it a very cost-effective approach for growing portfolios.

IVP for Private Funds provides a 360-degree view of the deal lifecycle and can be used for a range of portfolio data management functions, such as streamlining data collection, providing analytical dashboards, and generating relevant insights and reporting. By standardizing financial data templates and eliminating the need for manual intervention, IVP for Private Funds helps investment managers identify patterns in critical metrics across portfolio companies, sectors, and industries.

Other convenient features of IVP for Private Funds include:

• Fully customizable to accommodate any data point and reporting format
• Pipeline management tools to streamline pre-investment workflows
• Out-of-the-box reporting dashboards
• KPI tracking and management
• Tracking and management of financials and covenants
• Built-in data adaptors to third-party providers and aggregators
• Portfolio performance and compliance management tools
• Fully customizable closed-deal blotters with data audit capabilities
• Real-time mobile access to portfolios

Learn more about IVP for Private Funds  and see how your fund can implement an automated solution that can handle the growth you expect to achieve.

1. Forbes. “Sorry, Your Spreadsheet Has Errors (Almost 90% Do).” Sep 13, 2014. https://www.forbes.com/sites/salesforce/2014/09/13/sorry-spreadsheet-errors/?sh=2ec1d70d56ab
2. Bloomberg. “The London Whale.” February 23, 2016. https://www.bloomberg.com/quicktake/the-london-whale?leadSource=uverify%20wall
3.  Business Insider. “How The London Whale Debacle Is Partly The Result Of An Error Using Excel.” February 13, 2013. https://www.businessinsider.in/finance/how-the-london-whale-debacle-is-partly-the-result-of-an-error-using-excel/articleshow/21358120.cms