Your choice of accounting and investment analysis software is critical for your hedge fund, family office or private equity firm. The right selection can mean more control, better visibility and significant time savings. Make the wrong choice, however, and you can see inefficiencies, frustrations and less ability to keep a handle on your business and investments. Complicating the decision today is the newest asset class, cryptocurrency. Industry participants are increasingly looking for a back office software solution that incorporates accurate and user-friendly crypto accounting. But it’s not always easy to find.
The Challenges of Crypto Accounting
Cryptocurrencies are slowly creeping into the institutional landscape. Still, part of what has held industry participants back has been challenges in accounting for these unique investments. Bottom line, traditional back office software cannot necessarily handle crypto, and the software industry has struggled to keep up.
In a whitepaper entitled “Institutionalizing Crypto: Transaction Accounting and Processing Meets the Blockchain”, the Tabb Group suggests that back office lack of preparation has stifled adoption. The study’s authors noted, “Traditional securities processing and accounting systems are not conducive to facilitating blockchain/digital ledger-type assets that can be traded around the globe 24/7/365 across a panoply of execution venues.”
Here are some specific challenges when considering how back office software accommodates crypto accounting.
- Decimal places. One seemingly simple issue is that cryptocurrency denominations can be very different from those investments priced in fiat currencies. Unlike traditional currencies, which are only divisible by a certain number of decimal places, cryptocurrencies can be divided into as many decimal places as the protocol allows. This makes it easier for investors to purchase smaller quantities, enabling them to own a fraction of a coin. But it can make accounting more challenging. For example, Ethereum is priced in 18 decimal places. Most traditional back office software is built for much less.
- Lack of standard naming conventions. In the fast-evolving world of crypto, there is a lack of standards across many levels with naming structures being one of them. You won’t find anything like a CUSIP or an ISIN. This variation makes it difficult for software companies to accommodate many of the newer cryptocurrencies.
- Unavailability of reliable APIs for data exchange. APIs, short for application programming interfaces, allow programs to transmit data to each other. With crypto, one challenge is getting data from various sources where these APIs are not mature enough to be deemed reliable. Or the data included may not be sufficient for accounting purposes.
Back Office Software That Rises to the Challenge
Fortunately, some back office portfolio and partnership software does seamlessly accommodate crypto. Award-winning software company Fundcount has focused on helping firms keep up with the fast innovation in the investment industry. FundCount’s products bring speed, reliability and accuracy to its clients and users, along with accurate accounting for crypto and other less-common asset classes.
What asset classes does FundCount allow?
Along with cryptocurrencies, FundCount is set up to handle most everything your firm might classify as an investment. It supports complex credit default swaps, real estate holdings, NFTs, collector’s items, artwork and even yachts. It’s an all-in-one solution that incorporates a wide range of asset types and portfolio measurement methodologies.
Can FundCount handle my complex entity structures?
Yes, FundCount was explicitly designed to handle the often complicated entity structures in use in partnerships and family offices. Fund count allows you to easily track many types of entities, including individuals, corporations, trusts, partnerships or other structures. You can also link entities to individuals or organizations and instantly generate reporting to show performance, holdings or other metrics for an individual or group. For an illustration, read our case study on how TFO Phoenix used FundCount to transition from spreadsheets to a centralized database for their complex multi-family office practice.
Does FundCount provide multi-currency accounting?
Yes, FundCount accepts transactions in all currencies. Additionally, transactions can be added manually or via API in the default portfolio currency or the investment’s native currency. The program also provides a complete integrated cryptocurrency accounting solution.
Does FundCount automate my data flows?
FundCount is an integrated system designed to help you maximize your efficiency, so yes, it does help you automate your data flows. The platform accepts data feeds from many sources, including custodians, data pricing providers, and prime brokers to minimize data entry and import requirements. Once entered, the data is accessible across all parts of the platform, so there’s no need to duplicate efforts. All portfolio, general ledger, and partnership features feed off one data set. This saves your team significant time while minimizing data entry errors and inconsistencies across programs and modules.
Have an even more specialized need to automate? FundCount integrates directly with Zapier, a unique application that lets you automate repetitive processes so you save staff time and headaches.
The Future of Crypto Accounting
Until regulation exists, crypto accounting will have gray areas and uncertainties. But in the meantime, your data will be held in a centralized database with user-friendly reporting and editing. That will keep your organization more agile and able to respond when regulations are put in place.
The Right Information at Your Team’s Fingertips
FundCount has a unique reporting engine that allows you to pick from a predefined list of industry-standard reports or create custom reports for specific needs. The report creation process is simple and user-friendly. Over 50 different graphs and chart types can be included to enhance your reports.
Then, all your data is easily accessible on the FundCount customizable user dashboard, which users can view online, or on a phone or tablet.
While this new industry may still be experiencing growing pains, cryptocurrency has earned a spot in many institutional portfolios. Previously, this could have introduced significant complexity into your accounting, creating manual requirements that needed to be tracked in spreadsheets. The good news? Today, software such as FundCount handles it all for you, so cryptocurrency, or any less common asset class, doesn’t create administrative headaches for your team. Instead, the crypto-friendly accounting software will give your team the insight and control it needs to increase efficiency and produce even better results.