Fund administration and wealth management servicing may be two discrete businesses with different sets of clients and distinct requirements. But developing hybrid capabilities to handle both is a challenge that a growing breed of administrators are being called on to meet.
The premise is simple. Administrator clients keen to expand their business and margins are accommodating different types of investors. And they are turning to their service provider to provide the requisite support.
We’re seeing a range of instances. It may be an investment manager seeking to branch out by managing the portfolios of high-net-worth clients who don’t participate in any of the firm’s funds. Or a bank that tasks its fund administration arm with administering the discretionary portfolios of the parent company’s wealth management division alongside the admin’s traditional fund servicing operations in an effort to foster synergies and save costs.
The complications a hybrid offering introduces to administrators’ operating models through means delivery is not so straightforward.
Fund admin and wealth servicing are different beasts
Funds may be daily, weekly or monthly. The dealing date of a fund will then determine in large part the administrators’ service level agreements and operating set-up.
End-to-end servicing of high-net-worth or family office portfolios goes beyond the admins’ core function of calculating a fund’s net asset value and reporting to external investors. It requires a detailed, rigorous approach to client onboarding. Particular portfolio management and accounting tools and expertise. Distinct reporting demands for the respective client sets.
Depending on where the trades come from, the two businesses may have different types of trade input. Fund administrators usually receive the trade files from external fund manager clients. With wealth management, those files may be generated by internal portfolio managers – potentially even requiring a trade order management capability.
For both business lines, trades need to be recorded in a portfolio, then the value reported. But calculating the net asset value at dealing date of a hedge fund and creating the NAV packs is a different undertaking to reporting detailed breakdowns of the portfolios of high-net worth wealth management clients. In the funds world, the fund manager tends to have tools in-house to produce that exposure-type reporting for themselves, rather than relying on their administrator to do it.
Can your systems cope with hybrid demands?
The servicing specificities demand specific IT software capabilities too.
An administrator’s core fund accounting application is simply not designed to be a wealth management system able to manage, track and report on holdings, transactions and performance. And even if a fund accounting solution does possess the functionality to manage discretionary wealth portfolios, the administrator would still have to record the data in a different way to generate the look-through information and slicing and dicing flexibility needed for a wealth client.
The alternative is to run separate systems to support the different parts of a hybrid business. But that creates a technology integration imperative.
Open architecture system designs and advanced APIs will help by enabling easy connectivity between the platforms to automate data flows. Data from the disparate systems can then be extracted and used to create management reports that offer a holistic view of the entire business – a key requirement if administrators are to optimise the service quality and efficiencies of their hybrid offerings.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.