Back office technology landscape in the alternative investment management space is changing rapidly. This is driven by constant pressure to reduce operational costs and provide better alpha to investors. Traditionally, in order to have a solid back office setup hedge funds and private equity firms were required to have an accounting system that shadows their fund administrators. This would be the only way a manager could confirm that the financials that their fund admin is producing are correct. However, this process is extremely arduous and cost prohibitive as systems have become more and more expensive and industry has longed for a cost effective approach to conducting shadow. Newer technology vendors that didn't have as much capabilities as legacy 800-pound-gorilla accounting systems recently coined the term Investment Book of Records aka IBOR and labeled the traditional approach as Accounting Book of Records or ABOR. These newer systems didn't have the capability to conduct full ledger accounting and also in many cases lacked ability to keep track of historical positions and relied on daily position and cash refreshes from an accounting systems.
So which model of shadowing is right for you? IBOR or ABOR. There is no right or wrong. If it is easy to do or you have plenty of resources you'll benefit from ABOR as you'll have your own full internal records and investors will be really happy knowing how thorough you are with your shadow process. However, is cost and resources are a concern and you'd like to keep inhouse records to the minimum and your investors don't really care as long as you have some shadow, choose IBOR as your PMs will have access to what they need and anything that is non-trading can be "plugged" in. A key consideration that you must weigh is the power of your own data as the lighter IBOR model will make you heavily dependent upon your fund admin for books and records and other downstream function that you might want to automate or control inhouse (for example, waterfall allocations, fees and K1 recs) will therefore rely upon your fund admin. Moreover, it will be tougher in future if wanted to move to another fund administrator
OpEff pioneered the first ever web based portfolio accounting system, Perfona, that is a hybrid of ABOR and IBOR and is the first system to give the choice to the manager to determine what model to implement. At it's heart Perfona is a portfolio accounting systems but it enables a manager to skip the general ledger and keep a running list of it's investment records along with historical trades. Perfona is the only investment management system in the industry to provide a realtime general ledger along with an optional position only based portfolio management system. But what really sets the pinnacle in Perfona is it's ability to provide comprehensive investor waterfall calculations along with full investor and prospect management system with it's CRM. One system where you can pick and chose modules to complement deficient areas of a firm's back office. After all, it's not the portfolio accounting that interests the investors, it's their own money that they have invested and how well the manager has done over time with their money. Waterfalls are extremely complex and managers tend to spot check waterfalls or do them in spreadsheet. But OpEff's team of subject matter experts made it possible to systematize a investor management system. Learn more about the waterfall management system at: http://www.opeff.com/InvestorManagement.htmlContact Us