You may doubt the valuation of some securities, or you may wonder if all of yesterday’s trades were correctly accounted for, or is there a discrepancy in the administrator’s valuation of the FX hedges on the portfolio?

There is a myriad of ways that fund manager’s valuation of a fund might differ from a third-party administrator’s.  Without the right tools, the valuation detail of a large fund looks like a sea of numbers, and somewhere in that sea of numbers, there might be errors.

Why scrutinize your accountant?

Printing the correct NAV is fundamental to running any collective investment fund and is especially important for ETFs.

Those who have experienced it, will know that once published, correcting an incorrect NAV is a painful process. Any transactions which occur at NAV require correction, and this is difficult for all involved. It eats away at the reputation of the manager for competence. Some hedge funds have been known to delay the publishing of the NAV for several days for this reason. Better late than wrong.

For managers of ETFs, an incorrect NAV is even less forgiving. It is essential to publish NAV in a timely fashion to keep the channels to their market makers flowing freely. So, delaying publishing a NAV is usually not an option. What’s more, any accounting errors that show up in the NAV appear as tracking error to those that are scrutinizing the ETF. Tracking error – the variability of the fund’s returns relative to the benchmark’s returns – needs to be as low as possible for a passive ETF to be considered good.  Having tracking error which is due to small accounting differences is simply not acceptable.

The bottom line is that professional managers of ETF funds need a tool which allows them to identify immediately – as soon as an accountant produces a NAV calculation – any accounting differences between their own books and the accountant’s books.

Ryedale’s NAV Reconciliation Dashboard

Since the beginning, regular reconciliation of cash and security positions between IBOR and Administrator has been a staple part of the Ryedale Platform. From Version 4.0, we have further enhanced the reconciliation capabilities and combined them into a coherent NAV verification and signoff process. A user-configurable dashboard with red-amber-green statuses on every value item contributing to the NAV of every fund, quickly surfaces areas of concern and allows the user to quickly navigate to the relevant detail – be that a pricing mismatch, a position break, a P/L on a currency forward, or a myriad of other possible breaks. 

Our development was road-tested with a global top-10 manager of passive ETF products, where it shadowed an Aladdin IBOR and consumed accounting detail from State Street Bank.  The volumes of daily positions numbered in the tens of thousands and the turnaround from accountant files being available to the dashboard appearing was just a few minutes.

The NAV dashboard is fully incorporated into the Ryedale Platform from Version 4.0 onwards.  Managed service customers can choose to have NAV checks performed by Ryedale’s support team under their service agreement.

 

Author: Jon Rushman

Dec 10, 2020

London, United Kingdom

About Ryedale

Ryedale delivers a modern, cloud-based, full-service IT platform for serious investment businesses. Its software provides industry-leading support for model-driven and quantitative investment strategies, embracing index investments, smart-beta, custom indices, asset allocation, overlays and hedging. Ryedale’s customers include several globally recognised asset management firms and institutions, and a growing number of smaller asset managers who find its ‘Software as a Service’ to be cost-effective and a great fit to their needs.