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Alternative Investment Accounting Software

Challenges Alternative Assets Pose for the Back Office

As alternative assets continue to grow in importance and demand, financial advisors are not just spectators; they are active participants. According to a recent report from Cerulli Associates, advisors are increasingly leaning toward alternative assets, echoing the trends observed among retail investors. Alternative investment accounting software must be up to the task.

Key Takeaway:

  • Rising demand for alternative investments creates software challenges.
  • Each asset class has its own quirks, from the number of decimal places needed for cryptocurrency to the complex reporting requirements of private equity.
  • FundCount is specifically designed for alternative investments.

According to Cerulli Associates study, financial advisors made a bigger push into alts in 2023 allocating 14.5% of clients’ portfolios to alternatives. Those allocations are expected to rise to 17.5% in 2024.

The motivations behind this trend are multifaceted. For instance, a significant 69% of advisors aim to reduce their clients’ exposure to public markets, while 66% of advisors are investing in alternatives to reduce volatility and reduce downside risk. Income generation for their clients is another compelling factor for advisors, with 59% looking to alternative assets as potential passive income sources. Portfolio diversification and growth or enhanced return opportunities are also key drivers, cited by 52% and 42% of advisors, respectively.

With the potential for greater returns, alternative investments bring additional challenges to accounting software systems.

Is your Alternative Investment Accounting Software Robust Enough?

  1. Operational Challenges: The increase in transactions related to alternative investments has created technical and operational challenges, stressed legacy systems, and overworked human capital. This has led to firms trying to bulk up their teams and invest in new technology to streamline workflows.
  2. Scalability: As investors allocate large sums to alternative investments, broker-dealers and wire houses have struggled to meet demand. This has led to the need for scalable technology solutions that can handle the increasing volume of transactions.
  3. Data Management: Alternative investment systems bring accounting and investment workflows and data analysis capabilities into a private capital firm’s front, middle, and back offices. Managing this data effectively and ensuring its accuracy across all stages of the investment lifecycle can be a significant challenge.
  4. Integration: These systems need to handle multiple currencies, asset classes, and funds within a single management company. Integrating all these different elements into a single, coherent system can be complex and challenging.
  5. Regulatory Compliance: Compliance with various regulatory requirements is another significant challenge. Investment software systems need to ensure that all transactions and operations comply with relevant laws and regulations.
  6. Market Volatility: Alternative investment management is challenging, especially in a volatile market. This volatility can make it difficult to accurately track and manage investments.

To overcome these challenges, firms are increasingly looking towards end-to-end alternative investment systems that can streamline data management tasks, support the operations of an alternative investment fund through every step of its lifecycle, and handle the complexities of multiple currencies, asset classes, and funds.

Alternative Asset Management

Family offices, for instance, tend to have more sophisticated and unique portfolios compared to other types of investment manager groups. Alternative assets not only vary from traditional assets, they can come with idiosyncratic requirements that a software package may or may not be set up to handle.

Most developers and software providers support most, if not all asset classes. However, this is an area where you will want to take a close and careful look. Supporting an asset class and actually specializing in it can mean the difference between just having a placeholder field and work-arounds available, compared to having robust reporting capabilities dedicated to that asset class. Each type of investment has unique functionalities and features that must be accounted for individually. Crypto, for instance, uses far more decimal spaces than, say, equities. If these are not properly addressed in the system, reporting can suffer. Imagine how skewed a Bitcoin performance report would be if only two spaces after the decimal were available in the software.

When an asset class has been meticulously gauged and the properties of each and every class are considered to ensure that it is fairly represented, the payoff comes to fruition when charting and generating reports.

How FundCount Handles Alternative Investments and other Asset Classes

This diagram offers a comprehensive view of how FundCount simplifies complex data and operating environments.

On the left, you’ll find external inputs, while the right showcases key outputs. The center highlights where FundCount’s magic occurs. The gray streams between them illustrate the complex interrelationships from input to output data. FundCount is designed to handle this complexity, transforming diverse data sources into meaningful outputs.

Consolidating all transactions within a single platform, delivers several demonstrable advantages as alternative investment accounting software:

  1. Instantaneous Financial Overview: The reliance on outdated indicators derived from isolated data is no longer necessary. This system provides immediate access to a comprehensive financial overview of an organization, enabling informed decision-making based on the most recent information available.
  2. Efficient Operations and Reduction of Errors: The automation of critical processes eliminates the need for manual consolidation and reconciliation, activities that have historically been prone to errors. This not only decreases the probability of inaccuracies but also liberates valuable staff time for more strategic tasks.
  3. Improved Responsiveness in Client Services: With all financial data readily accessible, responding to client inquiries and requests becomes considerably quicker and more efficient. This enables organizations to surpass client expectations and establish trust through enhanced responsiveness.
  4. Streamlined Compliance Management: The system is equipped with pre-configured compliance tools and automated workflows, significantly reducing the load of manual reporting for tax and regulatory purposes. This ensures precision and efficiency while easing concerns related to compliance.
  5. Scalability and Flexibility: The inherent adaptability of the system allows it to effortlessly adjust to changing needs, easily managing complex structures and nested entities. This renders it suitable for organizations of all sizes, from individual entities to extensive networks.

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