The accounting book of record (ABOR) represents one of the fund administrator’s most valuable assets. With data that undergoes a series of stringent checks to ensure integrity, a robust, accurate ABOR is critical for meeting regulatory requirements and supporting timely net asset value (NAV) calculations for asset managers. But it can also provide a key opportunity to reduce duplicated effort – especially when it comes to creating a fund’s investment book of record (IBOR).
As well as supporting front-office decision making, the IBOR has increasingly been used to drive a range of middle-office services. But in assembling its own IBOR, the middle office is effectively overlapping with the activities of the back office, which will simultaneously be running its own ABOR on the same transactions. And the fact is that data from the ABOR could efficiently feed both.
The technology already exists to turn ABOR data into a real-time instant view of investment data for the asset manager. This can provide the middle office with a full IBOR, plus the opportunity to wrap around any number of services, in one easy sweep: a single process, generated by a single source of data, with no duplication.
So far so logical. But while it makes perfect sense to extend an ABOR into an IBOR, there has been a growing trend to work the other way around. Several failed, expensive attempts to use an IBOR to create an ABOR have ultimately reneged on their promise of full front-to-back processing – and typically resulted in a sub-standard ABOR.
It’s fair to say that data originating from the IBOR hasn’t undergone the same rigorous checks as the ABOR. What’s more, IBOR data will have been affected by the varying nuances of the global market and the different currencies, regulatory regimes and tax laws that comprise it. Converting these positions back into ABOR data for NAV calculations is a complex challenge that today’s asset managers can ill afford.
In contrast to the recent crop of IBOR-to-ABOR experiments, the ABOR has been steadily proving its worth as a strong foundation for both back- and middle-office data.
With a growing regulatory requirement to increase vendor oversight, some of the world’s largest and most progressive asset managers already use ABOR processes and technology for IBOR purposes – rather than relying on a lightweight IBOR system. Should their service provider fail, this gives them a robust back-up “shadow” solution for investment accounting and NAV calculation.
A number are choosing to deploy a hybrid model – running their own books of record for mature markets, for example, while outsourcing to external providers in emerging markets. While this helps them run internal processes effectively, it also makes it essential to replicate administration processes on a T+0 basis. An integrated ABOR/IBOR provides the ideal solution, allowing asset managers to use the same data for T+0 and T+1 calculations and avoid duplicating and normalizing data offline.
It’s clear, then, that an IBOR and ABOR can work well in combination, but with the ABOR always as the starting point – backed by a proven fund accounting system and technology provider. This is not just a matter of being able to strike a NAV, it’s about being able to strike it correctly, day after day, in a timely fashion: consistently managing high volumes of data in a short window maybe multiple times a day. That in turn takes experience, a strong track record and a continual drive to improve and refine the process.
As well as having no track record of success, IBOR-to-ABOR initiatives have largely proved nothing but expensive. And at a time when 39 percent of fund administrators expect their fees to fall, while 82 percent fear new competition , it’s never been more important to keep waste to a minimum and provide smooth, efficient fund administration. With duplicated processes and an expensive gamble, you may still be able to strike a NAV – but, ultimately, at what cost?
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