Accounting, Investment Analysis For Family Offices: Fixing the Disconnect

Darren Berkowicz Managing Director at SS&C Technologies SS&C Technologies Managing Director New Jersey 8 April 2022

Accounting, Investment Analysis For Family Offices: Fixing the Disconnect

Investment analysis and accounting is always going to be more of a challenge for family offices due to their asset class mix. Here, key technology tips are presented to help those serving UHNW individuals cope.

Darren Berkowicz, Managing Director at SS&C Technologies, gives the benefit of his wisdom on how family offices can fix common disconnects between their investment and accounting systems. This piece forms part of this publication's new report "Technology Traps Wealth Managers Must Avoid 2022," published in partnership with EY, which is available for complimentary download now.

In a typical high-end wealth management environment, portfolio accounting and investment analysis go hand in hand. The accounting system, after all, should deliver the data needed for managers to gain a comprehensive view of their positions, glean insights into risks and performance, and make informed decisions. In family offices, however, these processes are frequently disjointed. Without the pressure to account and report to investors other than family members, offices may not see the value of investing in an institutional-grade accounting system – leading to a vast data gap between accounting and analysis.

For example, many family offices still do their accounting work in spreadsheets and cobble together manual reports to produce something that presents less than a complete picture. However, as an office's investment strategies become more complex and its assets more diversified, the limitations of spreadsheet-based accounting become more and more glaring. 

The next step is a general ledger package, enabling you to generate statements quickly. Still, it does not allow you to drill down into transactional events for investment analysis purposes. For example, simply booking debit or credit entries may give you a portfolio summary. But unfortunately, it's not going to provide the visibility to understand how and why a portfolio is performing as it is at any given time.

Overcoming the patchwork platform
Family offices have a tendency to make technology decisions based on low costs and immediate needs, which results in a patchwork of single-purpose systems – a general ledger, for instance, plus separate portfolio, investor and tax accounting systems. As a result, integrating systems that don't naturally communicate is a big challenge, especially if they come from different technology vendors. Moreover, manual workarounds are not only inefficient and error-prone, but they also make it extremely difficult to pull together the right information to analyse investments effectively.

The do-it-yourself approach extends to data management. For example, as offices gather data from their brokers, custodians and asset managers, they discover how complex data aggregation can be without the internal resources to manage it.

So, how do family offices avoid these pitfalls? First, it's vital to make technology and operational decisions with a long view. Families are going to evolve. Investment entities are going to multiply. New opportunities are bound to emerge. You'll want to build a platform with the scalability to accommodate growth and the flexibility to adapt quickly to change.

Diversification implications
Secondly, a piecemeal approach to your platform will not serve you as your assets continue to diversify. Today, family offices are branching from traditional equity and fixed-income strategies into hedge funds, private equity, venture capital, private credit, and direct investments in businesses and projects. 

Unfortunately, many offices run multiple systems to account for and report on these different asset classes, leading to a fragmented view. What's needed is a single accounting system supporting a full range of asset classes, which can readily incorporate new or highly customised investment types. The system should also account for multiple investment entities within the family framework. 

Instead of simply buying technology products, look for a technology partner – preferably one with a comprehensive, seamlessly integrated toolkit with a robust portfolio accounting system at the core. The accounting system should have the ability to aggregate data from multiple sources through easy integration and automated connectivity and to update data across the entire investment platform with a single change.

Setting a clear growth path
You don't have to buy everything at once, but working with a single provider gives you a clear growth path. When you need to add different capabilities as your needs change, it won't entail cumbersome workarounds or complex engineering.

In a fully-integrated platform, the portfolio, tax and investor accounting systems all work together with the general ledger, without the need to re-key data from one system to another. Transactional events are captured in the accounting system. They are simultaneously recorded as general ledger entries. You will be able to view and report on portfolio holdings from various angles and generate individual financial and net worth statements for family members. A more sophisticated platform might include modules for performance measurement, portfolio analytics and risk, providing you with even deeper insights rooted in consistent, reliable data.

All of this assumes that your provider can deliver not only this breadth of integrated capabilities but also has a demonstrable track record of helping other family offices solve similar challenges. So, again, trust in experience and maturity.

The outsourcing option
If it feels lias though you are facing a significant investment in new technology to optimize your portfolio data for investment analysis, outsourcing might be the best option.

Family offices are keen on control. The word "outsourcing" may conjure images of a full operational lift-out and a loss of visibility. However, this view of outsourcing is outdated. These days, family offices have a wide range of options along the outsourcing spectrum to ensure you maintain as much control as you need, with complete transparency and access to your data and portfolio activity. You may have good reasons for wanting to retain specific operational processes in-house. So, look for a provider with a flexible, client-focused service model and co-sourcing options easily adaptable to your preferences.

Technology outsourcing can produce cost savings compared with traditional software licensing, implementation, training, maintenance and upgrading, reducing the need for in-house IT expertise. A key reason for outsourcing is to relieve your office's responsibility to keep current with rapidly advancing technology. You'll want to be sure that your provider has the wherewithal to continually reinvest in new technologies and ensure that you don't fall behind.

More productive pursuits
From the operations perspective, outsourcing can deliver significant efficiency gains. Freed from routine everyday processing, your in-house operations team can turn their energies to more productive pursuits, overseeing the outsourcing relationship and reviewing the daily work rather than doing it. In addition, make sure that the provider you choose can augment your internal resources with specialized expertise in accounting, tax and compliance issues, as well as operational best practices.

Above all, look for a provider capable of ensuring data integrity, quality and reliability and delivering an aggregated picture of each family member's interrelated wealth. Not only should you expect timely, accurate and thorough information on your office's investments, but you should have the added luxury of time to digest it and make well-thought-out decisions. As a result, spend less time generating, compiling and organizing data and more time analyzing it.

The path from accounting data to investment insights should be free of obstacles, and you don't have to go it alone. The key is finding an outsourcing partner with the breadth of capabilities, depth of expertise and proven infrastructure to put you in full command of your investments.

About SS&C
SS&C is a leading innovator in technology-powered solutions and operational services for the global investment management industry, with particular expertise in the full range of alternative investments, including hedge funds, private equity, funds of funds, real estate, real assets and direct investments. We are also the industry’s largest global fund administrator, entrusted with over $2 trillion globally in assets under administration. SS&C serves a worldwide clientele with a network spanning the major financial and commercial centers of North America, Europe, Asia and Australia. 

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