How an Asset Management Firm Confronted Complex Fund Accounting Challenges with Digital Transformation

Typically, stories about digital transformation are pretty exciting. Stories about safeguarding wine grapes from frost, paving the way to faster vaccine distribution and accelerating the digitization of the entire country of India. The accomplishments are extraordinary. You don’t often find a story about an accounting department leading the digital charge. Why? Well, it’s just not all that exciting–unless you comprehend how much is riding on them doing their jobs quickly and successfully. Let’s even things up with a story about an asset management firm that relies on fund accounting for its success.

A sizeable alternative investment firm that manages over $30 billion in assets with over 300 professionals across the US, was in that exact position. The firm’s emphasis on driving results is their “secret sauce” for client success; Balancing discipline with resourcefulness in their approach to investing, they produce results by way of market-leading returns.

When the firm’s legacy ERP and home-grown e-banking technology began getting in the way of their success and future growth, they realized they had a big problem.

Complex fund accounting can cause complex challenges

The firm’s most critical processes are complex and time-consuming. This was only made more of a challenge by legacy technology. The difficulties were most evident in the accounting and finance department, which at any given time supports 80+ management companies and 270+ fund:

  • The team was unable to use the current ERP system, and in its place turned into very large, awkward Excel spreadsheets with very complicated models for every calculation in every process, diminishing the ERP system to little more than a ledger. Data was mined from it and imported into Excel, where it was then reformatted to handle key processes and meet the firm’s financial reporting needs.
  • In addition, the firm’s business model is such that funds are being raised constantly. Each fund structure necessitates the setup of multiple legal entities and management companies, and these entities must be established as quickly as possible. The legacy systems were of no use, which amounted to an absurd number of hours spent by the accounting and finance (think 270+ fund entities and 80+ management companies in play at any given time, with entities being formed and liquidated all the time) .
  • Allocating income and expenses to a variety of management companies is also exceptionally complex, maintaining an equally complex ownership structure. With the legacy systems in place, the allocation of expenses was being established through an outdated process of time tracking used to calculate percentages. Unreliable equity allocation among management companies demanded manual processes and challenging Excel spreadsheets.

These were the most critical, but certainly not all the issues caused by the lack of a modern ERP system., Other issues ranged from slowed and complex closing, financial controls, audit logs, routing of approvals, and user role maintenance processes to lack of transparency needed to get a comprehensive picture of financial performance and a reporting system that didn’t allow for real-time data analysis.

In a nutshell, every process that was fundamental to a healthy, performing financial services firm, responsible for tens of billions of dollars in assets, was negatively affected by legacy systems.

The plan: An across-the-board solution with fund accounting as a primary component

After weighing several ERP solutions, including NetSuite, the firm made the decision to move forward with Dynamics 365 Finance due in part to the fact that the other vendors in consideration claimed that no one solution could deal with all their requirements. According to HSO, that was not the case. Our asset management industry experts were certain that everything could be managed within Dynamics, with the exception of banking automation, which HSO recommended SK Global to handle.

The complete solution included Dynamics 365 Finance, enhanced by HSO’s DynamicsAdvantage Multi-Entity Financial Management for Financial Services to manage the complex fund accounting requirements. DynamicsAdvantage was built to deliver everything an accounting team requires to effectively and efficiently automate the processes required for setup and maintenance of multiple entities, including: combining hundreds of entities in minutes; overseeing multi-entity transaction imports; quickly setting up entities; and managing fund accounting requirements, taking manual entries out of the equation and allowing firms to offer more choices to their customers and investors.

The result: digital transformation of the foundation of an asset management firm

In spite of a pandemic occurring in the middle of the engagement, it progressed and stayed on track. The fact is, HSO was able to enter and address needs about remote work and reporting right away so the focus could stay on the firm’s accounting needs.

Read about another Asset Management firm that implemented Dynamics 365 Finance

Staff can operate from anywhere and reach an on-premises server without dealing with obstacles like old-fashioned firewalls. Add to f that improved processes that enable the team to complete tasks from inside the system rather than outside, and the benefits are remarkable:

  • Time is saved and errors are reduced with the ability to bring in previous-day bank statement files and have them automatically map to transactions in the ERP, using a set of sophisticated reconciliation mapping rules.
  • The review process of the line-level detail and the process for allocating expenses takes less time.
  • Workflow automation and approval history tracking enables stronger internal controls.
  • With the assistance of cross-company data sharing, which allows master data to be shared across entities and non-shared data to be synchronized in a single location, information is made consistent.
  • Across the board, accomplishing tasks now requires less time. For example, a batch job can now be created to upload a file, enabling the user to work on other tasks while it is being performed.

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