There is a fundamental, industry-wide flaw in the reporting of investment strategy allocations against benchmarks.
Fund investments, including their underlying sector investment allocations, are typically determined on different software to that used to administer the fund. They may have been determined according to the fund’s investment strategy but, as the underlying asset sector allocations within the administrator’s software are often not the same, the reports that the fund’s auditor accesses may well show a significant variation to the investment strategy.
This is an obvious issue for manually entered assets, such as shares in a private company, but often includes assets with data fed sector information as well.
The result is an audit query regarding a seeming divergence from the strategy.
Typical problems include investments with:
• No underlying asset sectors at all
• No value – $0 unit/share price
• A negative sector or
• An “Unknown” sector designation.
The presence of gearing may also cause issues depending on how it is recorded by the administrator. It is not uncommon to find a borrowing classed as a negative percentage “asset” which the administration software caters for by recording the total of the other actual assets at more than 100%. This obviously skews any benchmark asset allocation reporting.
To deal with this we have released a comparison tool which identifies assets that may require attention, accompanied by a simple process for users to advise us of the discrepancies. This tool, supported by our leading investment strategy documentation creator, provides a powerful Investment Strategy solution.
