Investment accounting software [funds & other portfolios]

Introduction: Portfolio accounting vs fund accounting

What is a portfolio accounting system? What is fund accounting software? This article uses “fund” and “portfolio” interchangeably. Technically, a “portfolio” is a broader concept and a “fund” is a type of portfolio (usually regulated in some way).
We include traditional asset managers and pension trusts, fund administrators, church fund accounting software and local governments in the terms used here, as the difference between these use cases is small.

A last note before we get started: we’ll use the acronym IAS for Investment Accounting Software throughout this article.

NAV & Ledger

Calculating NAV is at the core of what an IAS does. The actual NAV calculation can support various cutoff times for different portfolios and locked accounting periods. NAV for multiple share classes and formal approval processes are all table-stakes for an IAS. Some will also support GIPS-compliant calculations.

Not all portfolio management accounting software will have general ledger (or subledger) capabilities. If you require a balance sheet and chart of accounts, double-check that they are available.

Standard capabilities of investment accounting systems

Audit, incl. reports
Multi-currency support
Cross-asset support, incl. real estate, derivatives (OTC & listed), equities, fixed income, infrastructure, funds (mutual, hedge, ETFs, VC, PE…), etc.
Delivery mechanism: on-premise, hosted or some variation of cloud. Read more about enterprise cloud options in our deep-dive guide on the subject.

Different types of entities using IAS

Many different types of firms can use an IAS. The same IAS product can, for example, serve as:

Government fund accounting software
Fund accounting software for churches
The IAS underpinning a global asset management giants

As long as the pricing model is flexible and the system supports all asset classes and a wide range of investment strategies, including large sets of portfolios.

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Data into the portfolio accounting software

Investment portfolio accounting software can ingest data in 3 different ways to get data into the system:

Managed integrations
Best for : plug & play connectivity, suitable for highly standardised integrations
User-configurable import/export application
Best for : configurable connectivity, suitable for most integration types – especially bespoke ones.
This functionality is unique to Limina. See an intro video here.
APIs
Best for : technically tricky integrations. However, it requires technical resources and introduces IT overhead
Manual upload / entry
Best for : when no other option is available, or it's a one-off import

Data to be imported

Description

Best type of integration

Transactions done off-system

For example, transactions from external managers or managed FX hedges

Import/export app

Subscriptions & redemptions

Applicable for fund accounting software with multiple investors

Import/export app

Accruals & payments

Including custody fees, legal, tax, accounting consultants and securities lending

Import/export app

Specific data for fund of hedge/mutual/PE/VC funds

Rebates, fees, distributions and capital calls

Import/export app

Reconciliation data

At a minimum, positions and cash balances (see section below for more details)

Import/export app

Pricing data

Can be multiple sources per asset

Managed integrations

Reference data

Identifiers, terms & conditions, classifications

Managed integrations

Benchmark data

Includes ability for the system to store historical, current and future planned changes (i.e. a time-series)

Depends on source

Corporate action data

Ideally captured as early as possible, long before ex-date

Depends on source

Limina’s unique import/export application is a native Extract, Transform & Load (ETL) application - a no-code tool that lets your team build any integration in minutes.

When evaluating connectivity features, it’s important to include monitoring requirements. Some systems can notify users of issues (exception-based workflows), such as if data didn’t arrive on time or the format was corrupt.

See a demo of the import/export app

Data generated by the investment accounting software

The best portfolio accounting software will automatically enrich information so your team can spend the least time on data entry. Examples include:

Trade entry
Even if you don’t use a trade matching solution, trades can (and should) pass through the system fully STP (straight-through processing).
Transaction fees & taxes
For example, commissions and stamp duties.
Accruals
The system automatically creates daily accruals.
Corporate actions
Taking a dividend as an example, when a corporate action ex-date arrives, the system should automatically create the cash flow with projected settlement on the pay-date in each portfolio that holds the equity.
Position lifecycle events
For example, when a coupon payment is due, the system should automatically create the cash transaction.

An IAS interfaces with custody and is the NAV/ledger. It also serves the Front office (either through reconciliation to an OMS or by having built-in OMS functionality). These 3 use cases all require different versions of the portfolios (cash and positions), and the best fund accounting software can do it all with the ability to show:

Cash and positions at different dates, i.e. both commitment date and settlement date.
Cash levels, including and excluding preliminary cash.
Cash and positions with all orders (any stage), matched trades and only settled transactions.

Automatic data quality controls are a natural part of an IAS, and surprisingly, few platforms support it. Examples of controls include:

Validate that instrument parameters are set, e.g. optional classifications used for compliance or reporting
Check for stale prices or large price movements, where the definition of “large” is configurable
Control that data that should’ve arrived actually did, e.g. files or SWIFT messages from custody didn’t

If anything unexpected happens, users are automatically notified – which we call exception-based workflows.

You can always reconcile against the custodian, at least part of the data – but now always on trade date (custody might only have settlement date reports). If you’re the investment manager and have a fund admin, you can reconcile against their view. If you’re the administrator, you might be able to reconcile with the investment manager if they have an accounting book of records.

Finally, reconciliations can (and therefore should) be fully automatic. You shouldn’t have to import/export data manually or open a single spreadsheet as part of this process. The IAS should be able to notify you if any mismatches require your attention. Get a no-strings-attached demo of Limina’s automated reconciliation.

1. Transaction reconciliation

If trade volumes are high or you’re investing in emerging markets with complex fees and taxes, it’s usually a good idea to reconcile trade quantities, prices, fees and taxes on transactions. This reduces the number of potential reasons for cash balance breaks.

The confirmation and affirmation process is automated if you’re using a trade matching platform. Consequently, in such scenarios, there is no need to reconcile transactions.

2. Corporate action reconciliation

The system will catch any corporate action discrepancies in the position or cash reconciliation. Therefore, it’s usually only worth the overhead with corporate action reconciliation if there are multiple sources for corporate action data or if the number of corporate actions is high.

3. Position reconciliation

Reconciliation of positions includes, at a minimum: instrument held, price, currency, market value, quantity/notional and cost basis (acquired price / tax lots).

Anything that could affect positions is caught in this step, which is why it’s 1 of the 2 most crucial reconciliations.

4. Cash balance reconciliation

Cash balance reconciliation with custodians (bank accounts) is the ultimate reconciliation. Almost everything affects cash, so the entire portfolio is likely accurate if cash matches. Examples of things that affect cash:

Trading
Subscriptions/redemptions
Positions lifecycle events (dividends, coupons)
Accruals

Custodians might not have trade date cash (only settlement date cash), so it's important for the IAS to support both. Ideally, reconciliation of both captures discrepancies early as well captures settlement issues.

5. P&L and NAV reconciliation

Reconcile the P&L of the portfolio, including asset positions (market movements and lifecycle events)—and NAV reconciliation, including on a share class level.

Note that if you’re the only party doing accounting for a portfolio, there might not be another source to reconcile P&L and NAV against. This is usually okay as long as cash balances and positions match, but the likelihood of P&L and NAV being incorrect is very small.

Additional functionality of investment fund accounting software

Additional functionality that only the best investment accounting software has includes:

Portfolio rebalancing
Performance (contribution and attribution) and risk
Exception rules beyond pricing, e.g. NAV tolerance, P&L, bps change, compared to index, and biggest contributor (positive & negative)
Dashboards for internal use
Reporting & data export. Including technical formats like CSV, integrations to BI-tools, Excel-plugin, API and scheduled reports.
Finally, an IAS can be a module of a broader front-to-back or front-to-mid solution.

Guide to investment accounting software, for funds & other portfolios

Introduction: Portfolio accounting vs fund accounting

NAV & Ledger

Standard capabilities of investment accounting systems

Different types of entities using IAS

Data into the portfolio accounting software

Data generated by the investment accounting software

Uncommon capabilities of investment fund accounting software

1. Trade and settlement views in parallel

2. Data quality controls

Reconciliation is expected in a modern IAS

Additional functionality of investment fund accounting software

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