Position reconciliation means comparing the number of assets held in a portfolio (fund or managed account) between the asset managers’ internal views and those of custodians or fund admins. “Assets” (or “holdings”) mean equities, bonds, options, OTC derivatives, etc – all holdings except cash.
In short, the main reason for conducting position reconciliation is that one participant (you, the custodian or the fund administrator) might have incorrect positions. An issue can reside in your internal records as an asset manager, but it can also be that an external party have recorded your positions incorrectly.
Duality in position-keeping ensures that discrepancies can be identified early and resolved quickly.
We recommend reconciling positions against the following:
This 3-way investment reconciliation process also closes the loop to ensure all three primary stakeholders have the same position views (you, your admin and your custodian).
Some examples of why positions might differ between the three parties:
There are many more things that can cause positions to become incorrect; these are just some examples of what types of breaks position reconciliation will catch.
| Data point | Description |
| Instrument |
Which asset you hold.
|
| Currency | The currency of the holding’s market value |
| Quantity or Notional |
|
| Price | The price per unit of the holding, mostly applicable for listed instruments |
| (Local) Market Value | The total value of the holding, which is calculated differently on each asset class (equities, bonds, derivatives, private assets, etc) |
| Tax lots or acquired price | Sometimes the tax lot or calculated acquisition price might be reconciled as well, to ensure the right P&L has been realised |
You might want to consider performing additional fund reconciliations, such as:
It's easy to think automation is better than manually doing work - and it is! But it's not obvious how or what to automate.
Manual reconciliations are time-consuming, especially as transaction volumes and portfolio complexities increase. Time can be converted into a very tangible cost, which you can easily compare with what reconciliation software costs. Sometimes, reconciliation is semi-manual due to limitations in the fund reconciliation software you use. In these cases, just look for a better tool – some cover all your needs, including Limina’s IMS.
Manual reconciliation is also:
While there has been a lot of hype around AI and ML lately, their usability within reconciliation is still limited. The main reason is that these statistical models are right less than 100% of the time. It can be 99.9% - but it will never be 100%.
Reconciliation needs precision; a break can never be missed. To achieve 100% accuracy, break identification logic must be based on exact, pre-defined rules.
That said, AI and ML can serve as a helpful layer on top. There are two main use cases within reconciliation:
These technologies are difficult to have as external add-ons to existing systems; it’s much smoother if the reconciliation software includes this functionality.
There are two setups for a reconciliation system:
The first approach is superior because it can adjust data within the investment management software automatically – resolving breaks much faster. It also reduces the need to integrate the reconciliation software with the investment management software.
The only case where a standalone system is the better choice is if the investment management software doesn’t have a reconciliation module or that module isn’t powerful enough, so it forces you into workarounds or flags false breaches.
Limina’s Investment Management System contains a reconciliation module specifically designed to help you avoid workarounds.