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All-In-One Investment Accounting: The Case for Consolidation

By Kirk Littleton, Funds Industry Veteran and Sales Director, FundGuard


I recently posed a question to ChatGPT, Siri, and Alexa: “What are the riskiest words in business?” Each responded, “We’ve always done it this way.”


In the nearly 100 years since the first open-ended fund was launched in 1924, the funds industry has exploded, with fund managers diversifying decade over decade to offer new asset classes and specialized products that focus on specific sectors, regions, or investment strategies. In tandem, investment accounting technology has evolved from manual ledger systems to sophisticated, bespoke solutions that have emerged decade over decade to meet the moment with “best of breed” breed capabilities for highly specific use cases.


As new strategies, asset classes and jurisdictions have emerged, organizations have just kept stacking on more of these specialized solutions. Even as I write this article, the rise of alternative and digital assets are driving the continued trend of building fit-for-one-purpose accounting systems — adding to the cycle of add-ons and driving up total cost of ownership across the investment accounting ecosystem.


And therein lies the problem. 


Today’s asset managers and their service providers are now dealing with a smorgasbord of legacy investment accounting engines that all fundamentally do the same thing, but for different books of record, different asset classes and different jurisdictions. This has created a level of redundancy that increasingly drives up operational burdens and costs as the industry continues to scale.


But there is a better way!


In the age of cloud-native tech and APIs, there is no reason to carry the operational burdens and costs of accounting for the same investment portfolios across different engines.


In this article we’ll demystify the differences between IBOR, ABOR, CBOR (Custody Book of Record); unpack the complexities of managing multiple books of record along with multiple asset classes and varying jurisdictions, and reveal how asset managers and their service providers can significantly reduce TCO and operational fragmentation by managing all the above – plus related microservices – on a single investment accounting engine.


Breaking Down Silos to Create a Single Source of Truth

To understand the complexities of today’s disparate systems, let’s consider common books of record in the investment accounting process – specifically ABOR, IBOR, and CBOR.


To best explain the differences between ABOR, IBOR, and CBOR, I’ll share an example of how each is employed in a specific scenario.


Imagine a manager overseeing ten mutual funds. To manage these funds effectively, they’re going to need timely, rich, and granular data to complete various tasks, like trading, investment compliance, calculating performance, or analyzing their current level of risk. For these tasks, an investment book of record (IBOR) is needed.


Beyond the IBOR, the asset manager or mutual fund sponsor needs to calculate a daily Net Asset Value (NAV) for each share class of their mutual funds and produce a full set of financial and tax records – the accounting book of record (ABOR). Very few U.S. fund sponsors maintain their own ABOR as it is typically outsourced to a custodian bank or fund accounting service provider.


In addition to the IBOR used by the asset manager and the ABOR for NAVs, financial reporting, fund compliance, etc., all mutual funds must have a custodian bank that is required to maintain their own book of record for the purpose of safekeeping assets, tracking real cash, and maintaining corporate actions – the custodian book of record (CBOR).


So as you can see, the typical fund manager is often left with three books of record for the same mutual fund portfolio, plus layers of asset classes and regional requirements all on disparate accounting systems, managed by disparate teams of people dealing with a spaghetti bowl of data sets and workflows that now must sync up at the end of the day so that processes like reconciliation can take place with accuracy and timeliness.


Ultimately, this amounts to a tremendous amount of work to not only maintain each book independently but also to reconcile an IBOR to an ABOR, and then the ABOR to the CBOR. It really overcomplicates the process in a way that is no longer necessary.


Overcoming the Hurdle of Traditional Investment Accounting With a Multi-Book Approach

We’ve established pretty clear ties from today’s disparate systems back to the traditional methods of investment accounting that have relied on bespoke systems and best-of-breed applications. And as you may recall from part three of my previous series, Smarter, Better, and Faster Investment Accounting, a “multi-book” approach to investment accounting is something that has been long sought after but is hard to achieve with older iterations of technology.


An all-in-one multi-book investment accounting solution integrates multiple asset classes, jurisdictional requirements and different books of record into a single, unified system that can then deliver multiple business views across the enterprise (image 1), creating a single source of truth for IBOR, ABOR and CBOR.


Image 1


We’ve already outlined the three essential accounting books typically needed by mutual fund sponsors. However, there are many other scenarios where having multi-book capabilities can substantially enhance operational efficiency. For example, a mutual fund sponsor who maintains an IBOR internally and outsources their fund accounting to a third-party service provider may also wish to maintain a contingent NAV (CNAV) for NAV oversight and contingency in the event the primary NAV calculation engine is not able to compute the required daily NAV.


As FundGuard’s all-in-one solution for IBOR, ABOR and CNAV is proving, a true multi-book solution can eliminate redundancies and significantly drive down TCO by integrating data and information from a single investment accounting engine across all books of record, including PBOR, SBOR and CBOR. Further, this same engine can power clients’ microservices, allowing them to build the specific capabilities they need around the FundGuard core accounting results.


Our goal at FundGuard is to provide a fundamental accounting engine from which all systems can access data in realtime through APIs. Many of the microservices surrounding the investment accounting process are already functions of FundGuard’s core system, like maintaining a general ledger, running NAV calculations, and expense processing.


And similar to an app exchange, our clients can build additional capabilities and services around our system to support other custody-related functions.


Performance is a great example of this. Every manager needs to calculate the performance of their investment portfolio. To do this, the manager could either build a performance engine or integrate via FundGuard using APIs to communicate with the FundGuard database to get information like positions, cash balances, or transactions to calculate performance. This would allow the manager to deliver the performance result directly from an app within FundGuard. This same concept can be applied to a multitude of requirements, asset classes and jurisdictions.


The Cost of Doing Nothing

As the Boston Consulting Group reported earlier this year, “To get back to historical levels of profitable growth, asset managers will need to cut costs by 20% overall and shift their revenue mix to generate at least 30% of their revenue from higher-margin products.” At a baseline level, how can this shift to an all-in-one investment accounting approach help to reduce costs?


Here’s an outline of the baseline costs going into managing multiple investment accounting engines:


  • Operations Teams: Ops teams are almost always the highest cost across the board. As a result, when you have multiple redundant teams essentially doing the same things across multiple systems, your costs can skyrocket fairly easily.
  • License Fees: Most large asset managers are working with multiple investment accounting vendors to leverage the necessary technologies to support their business. In addition to the license fees, the cost to maintain and operate on-prem software, support software upgrades and manage the various vendor relationships can have a significant impact on the TCO. Moving to a cloud native SaaS solution that supports all asset classes and all required books of record is the only real choice for firms that want to operate their own investment accounting operation.
  • Market Data: Throughout the investment management process, you need access to key pieces of market data, such as current prices, corporate actions, index data, etc. If you are having to use this market data multiple times for each system, your market data vendor is often charging you for each use.

Any plan to reduce your TCO for investment accounting must address the escalating costs in these three areas. So what are you waiting for?


It’s Time for a Change

At FundGuard, we have built our next-generation accounting system to revolutionize investment accounting for asset managers, asset owners, and their related service providers.


While it may seem like a risk to move from separate systems to a central source of truth, the true risk is in the cost of doing nothing – allowing costs and security risks to creep ever-higher when a viable solution is ready and waiting.


Get in touch with FundGuard today to learn more about our multi-book capabilities.