Accounting for any type of pooled investment portfolio is an exercise in painstaking attention to detail. The process begins each morning by pulling the previous day’s custody statements as a source for reconciling the day’s activity in comparison to the trades reported from the investment advisor. Accruals for income and expenses are applied. When markets close, securities prices from external data sources are updated and net asset values are posted to multiple reporting services. Our fund accounting team has significant experience in dealing with a variety of portfolio styles and investment instruments of varying levels of complexity.
There is no such thing as 75% accurate. It’s either 100% correct, or it’s wrong. The Nottingham fund accounting team recognizes the fundamental need for precision in the calculation, recording, and reporting of fund performance and pricing data, and there is a great deal of pride in the product that’s generated daily. This commitment to accuracy and timeliness is evident in all aspects of the process – investment purchases, redemptions, dividends, interest, principal paydowns, expenses and the important calculation and payment of advisory fees.
Fund Accounting for 1940 Act Funds
The Investment Company Act of 1940 was passed by Congress to protect investors. Products offered to the public, such as ETFs, mutual funds, interval funds, and closed-end funds, fall under this umbrella and are commonly referred to as ’40 Act funds. These funds must disclose holdings and pricing at intervals set forth in the fund’s prospectus and other disclosure documents. The price of a fund, or its share value, is determined by dividing the assets of a fund, less its liabilities, by the number of outstanding shares. This figure, which is referred to as the fund’s Net Asset Value (NAV), and is calculated daily and made public to NASDAQ and all other relevant reporting media nightly upon valuation.
Nottingham Fund Accountants are responsible for:
- Calculating daily NAVs
- Reporting NAVs via NASDAQ
- Preparing financial statements and management reports, allowing for customization per Advisor and/or Trust request
- Recording and reconciliation of securities transactions
- Recording and reconciliation of cash activity
- Recording of Corporate actions
- Calculating required fund distributions in accordance with tax requirements
- Preparing draft financial statements, audit process management, distributing semi-annual and annual financial reporting, and tax return preparation
- Calculating fund performance including selected peer comparisons metrics
Portfolio Accounting / Unitized Accounting
We are frequently asked, “How is portfolio accounting different from fund accounting?” Though it would not be incorrect to say, “it’s the same thing,” at Nottingham we view the functions to be a bit different. Fund accounting for ‘40 Act funds uses share balances to calculate a net asset value per share. Portfolio accounting, or unitized accounting, allows for same-day trading of assets that do not typically settle on the trade day by calculating a daily unit price and allocating the total value of the portfolio by percentages of ownership.
Another way of looking at the comparison is the tax reporting. Net asset value reporting results in 1099s, while portfolio accounting results in K-1 partnership allocations. Nottingham is one of the few fund administration firms in the industry with 30+ years expertise multiple types of accounting treatments.
Nottingham has been a pioneer with two types of accounts where efficiencies in management and operations are generated through combining multiple participant accounts into much larger investment management accounts.
Beginning in the middle 1990s Nottingham helped several religious affiliated organizations (hospitals, school organizations and local and national dioceses) combine investment pools for efficiency. The primary issue is to properly allocate the income, dividends, realized and unrealized gains and cost basis. By using unitized accounting principles from our mutual fund accounting background, Nottingham has developed a highly accurate process that allows for daily entry and exit.
Government Investment Pools
Government investment pools, enable city, county and special districts to combine their investments for purchasing power and operating expense efficiency. Thus is another area of singular expertise. Nottingham has been asked to work with government investment pools in some of the largest jurisdictions in the United States, and is working with multiple national organizations comprised of cities, counties and states to provide access to similar efficiencies on a larger scale.
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