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Talking Reference Data with Sarah Underwood: Getting Ahead in Fund Pricing

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Portfolio pricing and net asset valuation (NAV) calculations are top agenda items at many financial institutions as they strive to meet regulatory demands for transparency across pricing sources, models and methodologies, while increasing the efficiency and decreasing the cost of pricing and valuations.

Nowhere is this scenario more familiar than at fund administrators facing the challenges of escalating regulatory scrutiny, increasing workloads, more sophisticated client requirements and continued pressure on costs – all against a background of fierce competition and the need to differentiate to retain existing clients and build new business.

Recognising these difficulties in the market, AIM Software has researched and written a white paper covering not only the challenges faced by fund administrators, but also solutions that can help them meet client and regulatory requirements, innovate in support of differentiation and develop platforms for the provision of future services.

Entitled ‘Getting Ahead in Fund Pricing’, the paper details problems that must be tackled to improve pricing and discusses options for asset management firms and their service providers as they invest in pricing systems, perhaps as part of a broad project to centralise data management, or as a move to rationalise multiple portfolio systems, or simply as a means to upgrade to a more dynamic and responsive infrastructure.

Typical problems capping fund administrators’ performance – and sometimes causing fund directors to switch pricing and valuation providers – include demand for higher frequency delivery of NAV calculations, which in turn raises the number of manual interventions required in the portfolio pricing process. Administrators must also keep a vigilant watch on compliance and apply any changes, while new regulation often creates additional price exceptions that require manual intervention, thwarting administrators’ attempts to keep costs down and reach higher levels of straight through processing.

Legacy accounting systems can also be a problem as they are pushed to the limit by increasing volumes of pricing requests and sophisticated client demands that exceed their initial design. Some of these systems are unable to demonstrate effectively how prices are calculated and controlled, leading to an unacceptably high cost of manual intervention, while multiple portfolio accounting systems across an organisation all perform the same function but generate inconsistent prices for the same funds, making it almost impossible to create a reliable investment book of record (IBOR).

In a volatile market, clients are unlikely to wait for fund administrators to resolve these issues and are instead out in the market looking for administrators that are able to provide a one-stop shop for all their funds’ needs. Some administrators have invested in standardisation to differentiate their NAV calculations in terms of increased levels of accuracy, transparency and responsiveness, and lower fees. This may be attractive, but standardisation can reduce operational flexibility and result in higher fees for non-standard and customised client services.

Better, perhaps, is a centralised data management approach to portfolio pricing and the creation of a framework that will support a reliable IBOR. With a central data management platform in play, it becomes possible to provide consistent data to core applications such as accounting, as well as support improved data connectivity, increased flexibility to transform data and faster integration of new data types and asset classes.

The benefits of central data management platforms are being realised by many asset managers as they close down data silos and develop high-quality datasets for use across operations, but for fund administrators they can fall short as managing multiple clients and executing many pricing policies in tight timeframes often requires significant customisation of platforms designed for more generic needs. Where customisation is costly, so too is maintenance, leading data management technology vendors to build, and users to adopt, targeted data management solutions with demonstrable business outcomes.

One such solution is a portfolio pricing and NAV calculation platform that can be used to centralise pricing and deliver consistent pricing data to multiple legacy accounting systems. The platform could be implemented solely for this purpose, or as part of a wider enterprise data programme, but however it is implemented, it can support the fund administrator’s ultimate goal of improving internal business efficiencies and delivering first-class client services. These services will differentiate the administrator in the market and satisfy client demands for responsive, tailored solutions that meet internal audit and regulatory compliance requirements at sustainable costs.

Proving the potential of ‘packaged’ data management applications of this type, the white paper presents a case study of European Fund Administration, an independent third-party fund administrator that manages 2,800 funds on behalf of 226 client. The firm’s aim was to improve daily operations across all portfolios as well as offer tailored NAV calculations as a market differentiator. Working with AIM Software’s GAIN Portfolio Pricing solution, the administrator has achieved this and more.

If you are interested in upping your company’s game in portfolio pricing and NAV calculation services this case study is definitely one to read, but it is not the only one. Another publically named user of the GAIN platform is Clearstream International, a GAIN user that recently worked with AIM Software to upgrade the pricing platform to support daily pricing of over 700,000 records based on 2 million raw prices in less than 20 minutes. Impressive statistics for sure, but also a demonstration of how the concepts covered in this white paper can be turned into realities and benefits for fund administrators.

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