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Yes, Virginia, Accounting Can Be a Reason for Digital Transformation

How an Asset Management Firm Tackled Complex Fund Accounting Challenges

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When you hear stories about digital transformation, they’re typically pretty exciting: from protecting wine grapes from frost to paving the way to faster vaccine distribution to accelerating the digitization of the entire country of India, the accomplishments are indeed remarkable. You rarely if ever find a story about an accounting department leading the digital charge.

Why? Well, it’s just not very cool–unless you understand how much is riding on them doing their jobs quickly and effectively. Let’s balance the scales with a story about an asset management firm that depends on fund accounting for its success.

A very large alternative investment firm that manages over $30 billion in assets with 300+ professionals across the U.S., was in that very position. The firm’s focus on driving results is their “secret sauce” for client success; balancing discipline with opportunism in their approach to investing, they deliver results in the form of market-leading returns.

It was a big problem, then, when the firm’s legacy ERP and home-grown e-banking technology began getting in the way of that success as well as future growth.

Big challenges with fund accounting cause big roadblocks

The firm’s most critical processes are complex and time-consuming and were made even more so by legacy technology. The problems were particularly evident in the accounting and finance department, which supports 80+ management companies and 270+ fund entities at any given time:

  • The team was unable to use the existing ERP system and instead turned to very large, unwieldy Excel spreadsheets with very complex models for every calculation in every process, reducing the ERP system to little more than a ledger. Data was extracted from it and imported into Excel, where it was then massaged and reformatted to handle key processes and meet the firm’s financial reporting needs.

  • And that’s not all. The firm’s business model is such that funds are constantly being raised. Each fund structure requires the setup of multiple legal entities and management companies, and these entities must be set up as quickly as possible. The legacy systems were no help, which added up to a very large number of hours spent by the accounting and finance (think 270+ fund entities and 80+ management companies in play at any given time, with entities being formed and liquidated all the time).

  • Allocating income and expenses to various management companies is also extremely complex, supporting an equally complex ownership structure. With the legacy systems in place, the allocation of expenses was being determined through an antiquated process of time tracking is used to calculate percentages. Inconsistent equity allocation methodology among management companies required manual processes and high-maintenance Excel spreadsheets.

These were the most critical issues caused by the lack of a modern ERP system, but there were many more, from slowed and complex closing, financial controls, audit logs, routing of approvals, and user role maintenance processes to lack of transparency needed to get a complete picture of financial performance and a reporting system that didn’t allow analysis of real-time data.

In short, every process that was vital to a healthy, functioning financial services firm, responsible for tens of billions of dollars in assets, was being negatively impacted by legacy systems.

The plan: A comprehensive solution with fund accounting as a key component

After evaluating several ERP solutions, including NetSuite, the firm decided to go with Dynamics 365 Finance due in part to the fact that the other vendors in contention claimed that no one solution could address all their requirements. According to HSO, that was not the case. Our asset management industry experts were confident that everything could be handled within Dynamics, with the exception of banking automation, which HSO recommended SK Global to handle.

The complete solution included Dynamics 365 Finance, enhanced by HSO’s Multi-Entity Financial Management for Financial Services to handle the complex fund accounting requirements. The solution was built to provide everything an accounting team needs to effectively and efficiently automate the processes involved in setup and maintenance of multiple entities, including: consolidating hundreds of entities in minutes; managing multi-entity transaction imports; setting up entities quickly; and handling handling fund accounting requirements, taking manual entries out of the picture and enabling firms to offer more options to their customers and investors.

The outcome: Digital transformation of the foundation of an asset management firm

Despite a pandemic occurring in the middle of the engagement, it moved forward and stayed on track. In fact, HSO was able to come in and address needs around remote work and reporting right away so the focus could remain on the firm’s accounting needs.

Staff can work from anywhere without dealing with old-fashioned firewalls and other obstacles to reaching an on-premises server. Layer on top of that improved processes that enable the team to accomplish tasks from inside the system rather than outside, and the benefits are impressive:

  • The ability to bring in previous-day bank statement files and have them automatically map to transactions in the ERP, using a set of sophisticated reconciliation mapping rules, saves time and reduces the errors found with manual reconciliation.
  • The process for allocating expenses saves time and improves the review process of the line-level detail.

  • The ability to automate workflows and track approval history enables stronger internal controls.

  • With the help of cross-company data sharing, which enables master data to be shared across entities and non-shared data to be synchronized in a single location, information is consistent.

  • There has been a huge reduction in time required to accomplish tasks across the board. For example, a batch job can now be created to upload a file, allowing the user to work on other tasks while it is being performed.

"They have a plan and they're executing on it...guns blazing, full speed ahead."

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