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Investment Accounting: A Crucial Component of the Modern Front-Office

A FundGuard Q&A with Alan Schneider, Partnership Sales Director


In the asset management industry’s pursuit of digital transformation, many organizations have prioritized investments in front-office technology. Yet, new front-office technology will only go so far if the same effort is not put into the back and middle office systems that are feeding information across the investment management workflow. True digitalization is about seamlessly interconnected systems where data, processes, and decision-making flow effortlessly across the enterprise.


Having a front office adorned with cutting-edge digital solutions might give the appearance of progress, but it falls short of adding substantial value if the middle and back office remain entangled in antiquated processes and burdensome technology.


The FundGuard team has written quite a bit about the vital role that our cross-enterprise investment accounting platform plays in the middle and back office – but we have yet to dive into the potential impact of investment accounting technology on front office operations. So once again, we’ve invited our Partnership Sales Director, Alan Schneider, to help connect the dots.


FundGuard’s True Value Proposition for Front-Office Operations

FG: Why should front-office teams be more mindful of decisions being made about their investment accounting operations?

AS: The front-office responsibilities of buy-side firms revolve around making the smartest decisions possible using accurate and timely information. From the perspective of these teams, unknown risks await them when they continue to rely on outmoded investment accounting systems. 


Take buy-side traders and portfolio managers, for example. Their firm’s back-office operations may seem worlds away from their day-to-day responsibilities. For some, this creates a false sense that decisions made around back-office functions have little impact on the day to day business of portfolio management and trading — until, of course, the system starts to fail at the back-end, leaving the front-office without reliable or timely data. 


The front office is the original source of the firm’s investment data (securing client relationships, constructing and managing portfolios), so when they allow a hand-off of that data to functions that are not capable of effectively and efficiently manufacturing timely, accurate, trustworthy accounting data, they are complicit in what comes back to them in the front-office. And in turn, they suffer the consequences with lost investment opportunities for their clients and funds. The front office should influence the efforts in the middle office, including the technology choices.


So, when we think about the true value proposition that FundGuard is offering to these buy-side firms, it is our baseline ability to alleviate inefficiencies faced by businesses under high cost pressures. We offer a fully modern and digital-first approach that ensures these firms always have the data management capabilities necessary to maintain efficient front-office systems. 


Aesthetics vs. Functionality: Why End-to-End Digitalization is Necessary

FG: You referenced FundGuard’s digital-first approach for front-office data management — can you expand on the need for front-to-back data management and why it is not viable for buy-side firms to place all of their digitalization efforts on front-office optimization? Where is the line between aesthetics and functionality when it comes to digitalization?


AS: Just the other day, I asked a group of front-office consultants, “What is the nature of your data management projects?” 


To be blunt, the answers I received ultimately amounted to putting lipstick on a pig — buy-side firms are placing too much emphasis on creating a visually appealing and easy-to-use front office without considering the optimization of the data. In many cases, “data management” means repairing the many legacy activities that manufacture the information. And the front office continues to suffer.


By comparison, FundGuard’s captures data at the source. There is nothing more current and usable than the trade information coming directly from an OMS


We build the accounting record in the exact way it needs to be built using rules-driven processing, making the necessary information available immediately, as well as performing immediate reconciliations within the data to ensure it is processed properly and ties with other data. As a result, our clients have effectively established a highly reliable data manufacturing plant. 


This isn’t to say the final presentation of this data is not important — rather, FundGuard’s single source of truth enables end-to-end digitalization that can achieve fit for purpose results for the front office, all while ensuring the back and middle data management processes are streamlined too.


Dealing with High Volume Trading while Maintaining Scalability

FG: Speaking of manufacturing data, can you explain how FundGuard can further enhance front-office functions through the capabilities to handle high velocity and high volume trading styles? 


AS: Whether a firm posts one hundred trades per day or one million trades per day, FundGuard can manage these varied and sometimes high trading volumes. 


The way we manufacture data, leveraging Big Data technology, process-once data principles and efficient cloud usage allows FundGuard to keep up with volume, minimizing costs while maximizing timeliness and accuracy.  


FundGuard can obtain results and transmit information with incredible speed, often within milliseconds — but for buy-side firms that want even more immediate access, the deltas are available as well to be used for tasks like viewing the most current tax lot or position for an asset. 


In turn, FundGuard not only has the speed necessary for achieving a real-time view in the front office but also for establishing a high level of scalability that older technology simply cannot achieve. 


Although some older legacy systems have managed to mask their outmoded style of processing by dropping positions into separate databases — which is a data management issue in and of itself — these older systems still fail to provide the most current information a buy-side firm seeks As a result, high-velocity and high-volume shops are forced to build, maintain and tweak their own position keepers.


Yet, this is a capability inherent within FundGuard. 


Our design is the most capable of processing high volumes of data and trades when compared to all the other accounting systems on the market today. 


We offer the necessary capabilities to not only improve back-to-front data management but also ensure each component of the investment management process is utilizing data in the most effective way, creating a view of a portfolio as it’s needed within whatever part of the organization that is asking for it. 


Why Other Providers are Recognizing the Importance of Partnerships with FundGuard

FG: We are seeing more big names in portfolio management software recognize the importance of an optimized investment accounting system for front-office functions. Providers of data, information, and trading software — as well as big quant funds— are realizing they don’t have the modern technology needed for investment accounting and that their systems are not up to snuff, driving these providers and end-users toward better solutions. Can you speak on this growing recognition from firms that have historically relied on proprietary systems rather than collaborative partnerships? 


AS: You’re pretty much spot on with what you’re saying and it’s true — these big name providers and firms have traditionally closed themselves off from best-of-breed solutions due to an overall fear and paranoia of exposing their “secret sauce” to anyone outside of their company walls. 


These types of firms have always presented a challenge to any investment accounting vendor, as they tend to be highly resistant to external partnerships.


Yet, we are beginning to see a shift in this attitude as more and more firms realize they cannot find the kits needed to handle growing volumes of data and trades, partly because they have such a high dependency on breaking down latency and eliminating any forms of latency. 


We are now witnessing a greater willingness from these companies to speak with us on the technologies they would have traditionally tried to build independently. The reality of today’s modern investment landscape is that building such technologies takes legions of people, and particularly expert technologists to do this kind of work. 


What we aim to communicate at FundGuard is that we already understand the complications these companies face — no need to reveal the “secret sauce” or any other trade secrets they may be guarding. 


FundGuard can work with these companies to solve problems around these complications. We can address key concerns in the front-office regarding digitalization, accessing information, and keeping up with the overall front-office pace, all while eliminating inefficient systems that need to run an entire process just to produce a single answer. 


FundGuard Empowers Front-Office Optimization

Though often thought of as a back-end process, optimized investment accounting has a critical role to play in building modern, efficient, and effective front-office systems.


FundGuard’s investment accounting platform provides firms with a single source of truth that is as reliable as it is scalable. Contact the FundGuard team to learn more about our cross-enterprise, all-in-one investment accounting platform for ABOR, IBOR and NAV Contingency.