What percentage of the funds you administer request daily reconciliation and/or NAV calculation? Are the majority of funds asking for this service?

Administrators report mixed demand for daily reconciliation and net asset value (NAV) calculations, although requests for this have increased. The move is linked partly to fund managers and investors keen to keep a closer eye on exposures and how this might impact operational risk and liquidity of the fund.

Many hedge funds are using daily performance reporting to provide both improved internal analysis and a premium level of service to their institutional investors, notes David Morrissey. “SEI’s investments over the past few years have allowed us to create a scalable, technology-driven process to handle daily NAV and P&L reporting for over 40% of the funds we administer,” he says.

Deborah Yamin says State Street calculates daily NAVs for all of the hedge funds it administers.

Trinity’s John McCann says his company currently provides daily NAV calculations for 30% of the funds administered. “More and more funds are requesting this service in increasing numbers,” he notes.

“Omnium provides virtually all of its hedge fund clients with a daily transaction and position reconciliation service along with daily P&L and balance sheet reporting,” says John Buckley. “While the definition of daily NAV varies, a majority of Omnium’s clients do not request an official, transactable daily NAV. Most of our clients do request comprehensive daily P&L reporting,” he adds.

Peter Hughes says Apex offers this service “with an increasing number accepting, but the percentage is still relatively low.”

Northern Trust maintains the books and records for all of its fund vehicles on a daily basis, including daily trade capture, daily expense calculations, daily reconciliations of all activity as well as capturing daily price files, notes Ian Headon.

“As investors demand greater transparency, the funds we administer are increasingly requesting daily indicative NAVs. However, through our operating model we capture extensive daily information enabling us to efficiently support this growing demand,” Headon adds.

At LaCrosse Global Fund Services all funds receive this service except for funds trading highly illiquid or structured assets, according to Stuart Feffer.

Martin Tolcher at Legis Fund Services sees a different trend. He says none of the funds it administers has requested this service. “If anything, there seems to be a move to less frequent formal valuations being produced,” says Tolcher.

HSBC Securities Services presents a mixed response. In Luxembourg, Australia, Bermuda and the US no funds are requesting daily reconciliation or NAV calculations. Dublin has the highest percentage of requests with 25% of funds there requesting this service, followed by 12.5% in Guernsey and 5.5% in Singapore.

Hans Hufschmid at GlobeOp says daily reconciliations are a standard part of its processes but adds that “very few hedge funds are requesting daily NAVs”.

Equinoxe’s Stephen Castree says most funds continue to compute daily information in-house and reconcile to the administrator on a NAV period basis. “This is shifting somewhat as managers are looking to reduce their cost base and the fund is therefore requesting additional services of the administrator,” observes Castree.

“Each client, however, wants slightly different pieces outsourced and the ability to customise the solution client by client is key. We have some that have daily estimates and certain clients where a good portion of the middle office is outsourced to us but there are certain functions that the manager has to retain from a good governance perspective,” Castree says.

“Out of the 600 plus funds, sub-funds and managed accounts that we act for, some 200 require daily NAV calculation, which obviously includes daily reconciliation,” says Dermot Butler at Custom House. “The majority of funds are not asking for this service yet, but I anticipate that this will grow, particularly for funds who look for greater liquidity,” he adds.

Richard Ernesti says all funds administered by Citi receive daily cash and positions reconciliation. “This is a baseline ‘given’ as part of our service model. Traditionally hedge fund managers sought official valuations from the administrator on a weekly or monthly basis but with the moves towards EU-domiciled product continuing, we are seeing more and more requirements for daily fully reconciled valuations. At this point we would estimate that 50% of new business mandates are requiring daily valuations,” says Ernesti.

Approximately 40% of Citco funds have a daily requirement varying from reconciliations through to daily P&L, valuation and dealing NAVs, according to Oliver Scully.

Akshaya Bhargava at Butterfield Fulcrum says clients are requesting daily reconciliations, daily P&L reporting and in some cases daily ‘indicative’ NAV calculation with greater frequency. “Since most funds do not offer daily liquidity to their investors, an official daily ‘dealing’ NAV is not usually required,” he observes.

“Currently, approximately 10% of the funds we service require some form of daily reporting in addition to month-end. About 80%–85% of funds are satisfied with monthly reporting only (this includes all our fund of fund clients, who will generally be unable to report any more frequently). The remainder of our clients require some form of weekly reporting in addition to month-end,” says Bhargava.

“Over 90% of the funds we administer are Ucits and the majority have daily liquidity,” says Liam McNiffe at Bank of Ireland Securities Services. “The majority of the remaining 10% are non-Ucits and have weekly or monthly liquidity. We already carry out daily reconciliations for most of these and we are being asked more and more to provide indicative valuations,” he adds.

Whereas previously investment managers were able to look at the value of their accounts with their single prime broker, McNiffe observes that as funds are moving away from single prime brokerage, the administrator is best placed to consolidate data from a number of brokers into an indicative NAV.