Exclusive Online Only Content
Fortis Fund Administrator Plans to Automate Reconciliation Process
March 18, 2008
Fortis Prime Fund Solutions, one of the world’s largest servicers of funds of hedge funds, is phasing in an automated reconciliation platform across its global operations.
Though the alternative fund administration arm of Fortis Merchant Banking has not provided a timetable for the standardization of its reconciliations process, the project is already underway in the Dublin office, one of 18 worldwide. The other locations include New York, London, the Isle of Man, Luxemburg and Singapore.
The bank declined to identify the reconciliation software it is licensing but said it was installed in Dublin earlier this month with the goal of reconciling the holdings of fund of fund clients in its custody system with those of underlying fund administrators. SunGard Data Systems, CheckFree Corp. and SmartStream Technologies are among the largest providers of such software.
“We began with the Dublin office as a proof of concept to senior management to understand the merits of installing such a system,” said Richard Heimans, program manager for Fortis Prime Fund Solutions, headquartered in Amsterdam.
Heimans added that his unit plans to extend the platform to support other types of reconciliations, including cash and securities positions, open transactions and dividend payments, as well as additional markets.
The expected benefits of the automated system include a reduction in the costs and operational risk involved in using multiple internal software systems, manual intervention and a multitude of complicated procedures. According to Heimans, the new system will allow Fortis Prime Fund Solutions to expand the number of clients and volume of transactions it can service.
As of November, the Fortis unit had $325 billion in assets under administration; $200 billion of that was in fund of hedge funds and $125 billion in single-manager funds.
In 2006, Fortis Prime Fund Solutions strengthened its presence in the offshore market through the acquisition of Hedge Funds Services, the largest administrator in the British Virgin Islands. The deal added EUR2 billion ($3.16 billion) in assets under administration in 104 funds from 53 fund managers representing a variety of strategies including long-short equities, convertible arbitrage, event-driven and fund of funds. The Fortis unit in 2005 opened a subsidiary in Geneva.
Skyrocketing trading volumes have made the reconciliation of data among internal systems or in-house and external platforms a top priority. Many firms see potential cost and risk reduction benefits in the combination of automated systems and improved business procedures. Reconciling data, in turn, allows firms to identify failures to match and present them to the user for investigation and resolution.
Heimans said that while the new reconciliation platform identifies exceptions--otherwise known as breaks--in the process, investigations will likely remain manual. Nor will the investigation and resolution process become centralized--a growing trend among financial services firms.
Fund administrators typically reconcile data with their hedge fund clients and prime brokers. Those who offer services to funds of hedge funds must also do so with the administrators for each of the underlying funds. For Fortis Prime Fund Solutions, that amounts to 150 separate administrators, each of which uses its own messages.
The rapidly growing fund of funds market is beginning to leverage technology to manage its complex processes, providing a new market for front-to-back-office solutions. Boston-based research firm Aite Group projects that the assets of funds of funds are expected to double over the next three years, to $2.2 trillion from about $1.3 trillion last year.
