Multi-Manager Funds Pose Knotty Accounting Issues

Terry Flanagan

Multi-manager mandates are increasing as institutional asset managers try to generate alpha in a bleak economic environment.

“The multi-manager structure provides cost advantages, as sleeves of the portfolio can be carved off and given to a manager with expertise and scale,” said Michael Galvin, product manager for Linedata Mfact, a portfolio accounting system for hedge funds, institutional asset managers, and fund administrators.

However, while multi-manager portfolios are becoming more popular, there’s also a downside.

“From an operational and regulatory point of view, the overriding concern is how to exercise control at both the consolidated and manager level,” said Galvin. “Co-ordinating activity across multiple mangers with disparate technology can be an integration nightmare.”

The shift to full multi-manager operations is evidenced through two of Linedata’s largest third-party administrator clients, said Galvin.

These firms, each with approximately $30 billion in assets under administration, provide administrative services to both traditional and alternative clients.

“The ability to handle these structures has been a key priority over the past 18 months, as their client base is increasingly utilizing a multi-manger approach,” Galvin said.

In order to respond to their clients’ needs, these administrators needed to provide full manager-level general ledger and NAV [net asset value] reporting, in addition to portfolio reporting.

This requires calculating NAV and performing other accounting tasks on both a consolidated and individual manager basis.

“The technology must support the single entry of all data and provide reliable calculations and reports,” Galvin said.

Global asset managers are evaluating their capability to respond to regulatory change as well as provide efficient platforms to manage market volatility.

“Many of the firms that we are working with today are looking for a solution that can provide efficient data integration, robust data validation and flexible reporting with business intelligence tools to respond to regulatory demands,” said Jeremy Skaling, head of product management at Eagle Investment Systems, a subsidiary of custody bank BNY Mellon.

Eagle Investment Systems is integrating business intelligence software from MicroStrategy Inc. into its portfolio management system, enabling managers to use the MicroStrategy-based reporting platform to quickly navigate multiple complex datasets, create data visuals and interact with portfolio information on their mobile devices.

“Having a centralized data management platform allows firms to quickly analyze exposure, provide management insight and quickly and accurately report to regulatory bodies,” Skaling said.

Linedata Mfact has been enhanced to provide multiple manager portfolio, general ledger and NAV reporting in parallel with traditional fund level reporting.

The ability to track funds by manager and total portfolio provides the necessary controls for reporting, compliance and accounting at both the consolidated and the manager level, the company says.

“We want to establish Mfact as the workhorse of the back office,” Galvin at Linedata Mfact said. “Multi-manager support is the cornerstone of our strategy.”

Related articles

  1. Tradeweb’s credit trading solutions and data will be integrated into BlackRock’s Aladdin.

  2. Trading Europe From ‘Across the Pond’

    Despite difficult circumstances, demand for SFDR Article 9 funds remained sustained.

  3. Assessing Bond Liquidity
    Daily Email Feature

    Low Touch, High Liquidity

    Janus Henderson traders use a broad spectrum of electronic tools to optimize the search for liquidity.

  4. Florida CFO said ESG standards are being pushed by BlackRock for ideological reasons.

  5. Outlook 2016: Stephen Grainger, SWIFT

    The new regime requires a new investment playbook involving more frequent portfolio changes.