Evolving technology in fund administration
By: David Gooding
(August 8, 2016)
If you’re standing still, in truth you are probably going backwards relative to the rest of the world. So it is in any business, and those who insist on maintaining the status quo will get passed, run over, or both.
Although Nottingham’s services incorporate a number of functions, the common denominator for almost all our clients is fund accounting and calculation of net asset value; and participant recordkeeping and shareholder allocations. Both functions can be completed on a slide rule, with a calculator, with 13 column accounting ledgers or with excel spreadsheets, but in all such cases it would be difficult to claim any technological efficiency to pass on to clients. And try finding a Millennial who knows how to use a slide rule. Not easy.
Evolving technologies, therefore, are constantly on our radar at Nottingham, and the result has been (and will continue to be) a non-stop willingness to review and consider enhancements, and purported technological improvements.
Since we have been performing these basic building blocks of fund administration for almost 30 years, our technology has changed quite a bit. Software vendors go through cycles of development, and milking their products for cash flow. Industry changes often occur faster than a licensed software vendor can develop a new release. It makes us ever thankful, on a consistent daily basis, that we have an in-house technology team. If Nottingham has a secret sauce, our IS gurus are Colonel Sander’s recipe.
Over our 30 years, we have combined best-in-class off-the-shelf software with a layer of internally developed custom programs. Proprietary developments include secure web portals for our clients and their shareholders, exception reporting, performance measurement, reconciliations, and many other applications. This creates a wrapper around the off-the-shelf programs that allows us to rapidly develop and extend solutions beyond typical accounting reports.
For shareholder and participant recordkeeping, Nottingham selected the Envision software system. In the wake of Dodd-Frank, we felt the liability and risk to our clients in attempting to monitor the evolving regulatory environment and requirements was more than our in-house, proprietary system of almost 20 years could handle. Envision is an industry leader, and has the infrastructure and business commitment to remaining “ahead of the curve”.
For fund accounting, the world is certainly changing in terms of types of fund structures. Structures that for years were confined to geographic pockets globally are now being used around the world as the markets continue to look for differentiation from competitors. In the U.S., market solutions limited to 40 Act funds 30 years ago have evolved to any number of public funds, private funds and various iterations of both – interval funds, actively managed ETFs, ETFs, CITs, UITs, EIEIOs.
After literally seven years plus reviewing various systems, and a few stops and starts with what we thought might be our solution, Nottingham has elected to partner with Multifonds, a system that is used around the world by some of the largest Tier 1 fund administrators, and a system with an impressive array of functionality to cope with multiple jurisdictions and also with increasing variety within the U.S. market.
The Multifonds software utilizes exception-based accounting. As we proceed through our daily steps, the software is running tests in the background that alert the fund accountant of any data or transactions that fall outside of set tolerances. For example, a large trade that is booked in excess of preset tolerances or a security price that changes beyond a certain percentage will be flagged and alert Nottingham staff to review and justify the exception. Our legacy system required a team leader to validate the “break” in order for the accountant to continue their processing. This centralized checks/balances system will enable the department as a whole to monitor its progress and identify trouble spots.
Accountants do not seek change, but the Nottingham team has been driven to make the transition successful. If we had been content to service only 40 Act funds, or only U.S.-based private funds, change would not have made sense. But preferring to keep moving forward by not standing still is the chosen path, and we welcome the change. Even if it causes some short term discomfort.
In making the decision to change, the primary goal was to find true partners for the next phase of Nottingham’s growth. We viewed that next stage as one of increasingly varied structures, as opposed to “more of the same.” The variety and changing structures in the markets, which we expect will continue to evolve, require systems with more experience with that variety. Envision has excellent traction in the US markets, which is where virtually all of our shareholders must report from a tax standpoint. We believe Envision has long-term staying power. Multifonds which expanded into North America over a decade ago, now has some of the larger U.S. and Canadian administrators using its system. We feel this combination provides a nice resume and business focus for the years ahead.