How to Reduce Operational Risk in Fund Administration
The challenge of operational risk is the most enduring problem in investment management. With increasing complexity and more stringent regulation the chances of human error, time delays and failures in controls multiply, as business processes become more fragmented and manual.
The modern fund management software package is pivotal to reduce these risks, by consolidating portfolio management, accounting, reporting and regulation into a single system.
Where Operational Risk Typically Arises
In the environment that fund managers face today, which consists of multi-asset class funds, cross-border investments, daily valuations and detailed reporting, exposures in operation risk emerge:
- Manual trade processing.
- Disconnected portfolio and accounting systems.
- Unreconciled figures and lengthy reconciliation processes.
- Inconsistent data across departments.
- Weaknesses in regulatory reporting.
The use of separate tools to operate a discretionary mandate, a mutual fund, and a fund of funds structure leads to loss of control over the operation as a whole. This is where integrated fund manager portfolio management software is indispensable.
The Role of Fund Management Software
Modern fund management software provides fund management firms with a common operating environment by centralising the management of the portfolio, the valuation process, accounting functions and the reporting requirements in a single platform.
Instead of managing separate systems for portfolio management and fund accounting, firms benefit from consolidated data models and coordinated workflows that eliminate data reconciliation and reduce operating friction. Investment decisions, valuations and reporting become integrated on a reliable foundation of data, giving institutional investors better transparency and control. Investment firms, and Collective Investment Schemes, use advanced mutual fund portfolio management software to perform the crucial tasks of daily valuation and systematic control of asset allocation over a multi-currency portfolio, all within a well-controlled regulatory environment. This not only leads to efficiency, but to institutional-level governance in the process.
Reducing Risk Through Automation & Integration
A high level of automation will bring more reliability to the operation; for example, using straight through processing (STP) for trades and end-of-day processes, and performing regular controls on a portfolio with instantaneous real-time visibility, and programmed compliance tests on the data. When funds of funds, or umbrella funds, have multi-class shares, a dedicated fund of funds portfolio management software solution ensures adequate and systematic oversight of the underlying exposures and their reporting under a consolidated view.
Supporting Scalability & Regulatory Readiness
Adapting to the changing environment by integrating new asset classes or broadening a firm’s jurisdiction can be a slow process for those with obsolete systems, and for them a scalable fund manager portfolio management software platform becomes essential, as it permits growth to a larger number of clients and structures, without being restricted by limitations of the underlying infrastructure. This means firms operate with system-level adaptation rather than trying to play catch-up to regulatory changes.
What Defines the Best Fund Management Software?
In assessing what constitutes the ideal fund management software the decision should rarely be based on features alone; the criteria for consideration will include: degree of integration, operating reliability and scalability, and the long-term system support provided. The solution should:
- Combine fund accounting and portfolio management.
- Be capable of managing multiple entities and countries.
- Ensure strong audit trails and control functions.
- Seamlessly integrate with custody, banking and other third-party systems.
- Allow automation while preserving transparency.
The more effectively that operational complexity can be streamlined, and governance improved, the better the solution. At PCS, we engineer integrated fund management software which provides a centralised system for managing portfolios, funds and regulatory controls, so investment firms may operate reliably and efficiently.