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Smarter, Better, Faster Investment Accounting: A 3-Part Series

Smarter, Better, Faster Investment Accounting: A 3-Part Series

As investment firms continue to rapidly embrace a digital-first approach to business, so too must they and their administrators implement more efficient front to middle to back office operations. Data is undoubtedly a key component in this growing sophistication, as investment and asset managers need a more comprehensive understanding of client portfolios and current markets. 

 

For asset managers and their service providers to stay competitive, the key is to adopt a digital-centric approach that starts from the back and is capable of manufacturing real-time investment accounting data for use cases across the entire investment management lifecycle. In this three-part series, FundGuard’s Kirk Littleton delves  into the subject of investment accounting technology, covering three crucial topics: 

 

 

This week, we are diving into the first part of this series, where we take a closer look at the state of data management in investment accounting and the growing importance of real-time data.  

 

PART 1: ABOR AND IBOR – THE BENEFITS OF REAL-TIME DATA MANAGEMENT IN INVESTMENT ACCOUNTING  

 

Data is currently leveraged in a variety of ways in investment accounting. Efficient access to accounting data is crucial for enabling asset managers to make faster decisions and respond with greater speed to market challenges and fluctuations as they occur. 

The ability for  asset managers to effectively leverage investment accounting data is highly dependent  on their approach to recordkeeping.  

 

Two key books of record are needed in any strong investment accounting system — an Accounting Book of Record (ABOR) and an Investment Book of Record (IBOR). 

By FundGuard’s definition, ABOR supports a variety of basic investment functions but is primarily designed for back-office use cases. Meanwhile, IBOR offers more broad and real-time insights into trading, compliance,  performance, and risk-related data, making it essential to the front and middle offices.  

 

For ABOR and IBOR to work together effectively, a centralized system is needed that can simultaneously support the front, middle, and back offices. However,  creating this type of single-layer solution takes significant developmental effort and resources that many enterprises do not have access to. In this case, firms can still opt to expand the use of ABOR data for front and middle office use cases— though this is still less robust than the richer more granular data obtained via IBOR. 

 

Regardless of whether an investment firm opts for a unified solution for ABOR and IBOR, or an expanded ABOR strategy, it is crucial that organizations have a robust set of data management capabilities to effectively aggregate and/or manufacture their investment accounting data.


DATA AGGREGATION VS. DATA MANUFACTURING: WHICH IS BETTER? 

 

Data aggregation and data manufacturing are not one and the same, and how organizations harness these two separate capabilities can truly differentiate their approach to ABOR and IBOR.

 

Data aggregation is the process of bringing data from many different sources to one centralized database. This has become a popular practice in several industries, earning it a variety of names (like Data Store or Data Lakes). As part of the data aggregation process, data is searched and organized into a digestible summary or report that is traceable to the original source. There are several disadvantages to data aggregation models, but the biggest is how difficult it can be to update when the underlying source accounting systems are changed (which, as we all know, happens routinely). 

 

Meanwhile, data manufacturing is the process of calculating new data from raw data inputs. For instance, in the case of investment accounting, data manufacturing can take raw accounting data and transform it into positions, tax lots, general ledger balances, NAV records, performance reports, or other key insights. 

 

In today’s world of real-time integrations, the use of aggregated investment accounting data is less advantageous for many use cases and is best suited for client communication tasks and applications, such as online client portals or mobile apps. However, organizations that can harness and manufacture data from their investment accounting operations will find real advantages across their front and middle-office operations, and their approach to IBOR. 

 

The key is that integrating mission-critical data into the middle office and front-office decision support systems requires an investment accounting engine that is processing data in real time and providing very rich, granular information to the appropriate applications.  

 

ACHIEVING A REAL-TIME DATA SYSTEM IN INVESTMENT ACCOUNTING

 

It is FundGuard’s view that organizations need to adopt an investment accounting approach that is based on a comprehensive data manufacturing model – one that is not reliant on other accounting systems. This is the path to achieving true real-time front to middle to back-office integration that will drive operational efficiency/scalability.  

 

In part two of this series: “‘Best of Breed’ Investment Accounting Applications,” we will discuss the importance of consolidating bespoke accounting systems, built for specific asset classes, onto a single accounting platform.  The consolidation of accounting systems onto a single IBOR engine will result in real operational efficiencies and cost savings.    

 

As outlined in this 2020 McKinsey report, siloed data can cost financial institutions billions of dollars per year. The report highlights a leading global bank that had more than 600 data repositories spread out across different business siloes. 

The cost of managing this many repositories? Roughly $2 billion (USD) annually. 

 

But by simplifying the business’s data environment, the global bank in question was able to streamline data processes, resulting in more than $400 million saved in annual costs.

This is also a key enabler for more advanced record keeping strategies, such as IBOR. As discussed earlier, IBOR implementations can come with a hefty price tag due to the developmental efforts and resources needed to make IBOR effective. 

We’ll dive deeper into these ideas in part two. 
 
TRANSFORMING ASSET MANAGEMENT OPERATIONS

 

At FundGuard, our goal is to provide asset managers with a simplified, cloud-native solution to investment accounting. Our all-in-one investment accounting solution integrates functions for ABOR, IBOR, and CNAV on a single platform in a single account based on a single set of transactions and events.

 

 With FundGuard’s platform serving as a single source of truth, asset managers can: 

  • Gain real-time data and knowledge-date historical access for information such as positions, valuations, ledgers, and cash flow
  • Maintain a multi-book-of-record approach for ABOR, IBOR, and other key processes
  • Enhance platform accessibility with operations and management dashboards
  • Benefit from greater cloud efficiency, continuous deployment, and lower operating costs
  • View bitemporal data views and a portfolio history with full record-keeping
  • Utilize a real-time processing and controls framework, as well as continuous reconciliation
  • Obtain cash and positions data by dimension, location, and status
 

Our primary objective at FundGuard is to take investment accounting to the next level with products and services that are smarter, better, and faster than our competitors. 

Contact our team today to learn more — and stay tuned for Part 2 of this series, coming March 22, where we delve into the topic of “Best of Breed” applications.