Modern portfolios need to incorporate more vanilla stocks and bonds to keep high-net-worth clients happy and liquid. Does your firm have the technical muscle it needs?
According to one recent survey, about half of all advisors expect to expand their clients’ exposure to alternative assets by at least 15% this year, while most of the rest are boosting their allocations by smaller amounts.
It’s not hard to see why advisors are thinking outside the box for new ways to provide their clients with current income and better overall diversification.
The problem is that while you’re reaching for everything from real estate to life insurance settlements, the industry’s accounting systems just haven’t kept up.
Alternative asset accounting is trivial if you’re looking at a hedge fund, ETF or other commingled vehicle where your portfolio management platform can receive automated NAV updates from the custodian.
But for direct investment in more unconventional or hard-to-value holdings, the state of the art is still the age-old white envelope.
Whether it’s a family business or a share in a collection of classic cars, the vital details of every exotic asset in the portfolio go in the “envelope” and the advisor or a staff member manually enters its approximate value into the system.
Once entered, that value needs to be updated manually, often after soliciting a new evaluation from the person or company responsible for the assets.
As with all manual data entry, this process will need to be checked and validated for compliance purposes. And unless you’re extremely careful, every calculation your system tries to make that involves that manual exception will generate errors that you then need to accept or reject after case-by-case review.
As long as you only have a few “white envelope” clients in your system, it’s not so bad.
But multiply the work and responsibility that every single envelope entails by the number of clients you have clamoring to put something unique in the portfolio, and you’re looking at a lot of work and responsibility.
We work with many of the custodians who hold these assets on investors’ behalf, so we’re familiar with exactly what it takes to integrate each and every one of these exceptions into a stock- and bond-centered platform.
Before you commit to expanding your alternative allocations -- by 15% or any amount -- give us a call. We’d love to share our best practices with you.
Empaxis provides high-caliber, highly customized back-office outsourcing and reconciliation services for asset managers and hedge funds across North America, Europe and Asia.
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Alternative Investments Still Need Traditional Reporting (Blog post by Cynthia Stephens, VP of Marketing, ByAllAccounts)
Eliminating Manual Processing in Alts: Millennium Trust’s McCartan (Blog post by James Carney, CEO, ByAllAccounts)
Fast, Efficient Reconciliation (Complimentary Whitepaper)comments powered by Disqus