Operational Excellence Is Within Your Grasp

Agility is where it’s at – for all companies, in all industries, at all times. That includes the world of alternative investment firms, where agility is all about organizing the flow of information that attracts, manages, and retains capital. To achieve such agility, alternative investment firms need to practice operational excellence.

Operational excellence is a nice thought, but the reality is often (let’s be honest) quite the opposite. For example, have you ever …

• Needed days (rather than minutes or hours) to answer an unexpected inquiry about a fund’s performance?
• Been unable to give a satisfactory explanation to an irate investor as to how her fees were calculated?
• Had long delays produce tranche-level balances and liquidity dates for an investor seeking to redeem?

We get it. We know the issues. You are juggling an ever-increasing number of products, each with unique closing schedules and currencies, creative fee terms, complex liquidity terms, and distinctive income allocation methods. To say that operational excellence is a challenge in such a complex environment is an understatement!

The problem looms even greater because you may not have a great way of tracking, managing, and performing calculations on all this information. If you are like most firms in your field, you have either:

• Built a unique spreadsheet for each fund, noting key persons and technology risks, OR
• Outsourced all accounting to one or more administrators.

However, Excel was never designed to be a partnership allocation platform or a liquidity forecasting platform for hedge funds, private equity funds, or funds of funds. You lose control with spreadsheets because you are asking them to deliver the impossible. Ouch.

And as for outsourcing – well, the very word “outsourcing” implies a loss of control. Outsourcing creates a blind dependence on an administrator … one who has implemented their own version of your firm’s legal documents, without giving you the ability to validate the numbers. Double ouch.

It’s time to get rid of the “ouch” and take back the ownership. Regaining control of your data will put you on the road to operational excellence. Ultimately, a centralized system that can handle everything – full general ledger accounting, tranche-level liquidity, fund closings, partnership allocations … the whole works – is the best solution and the one that will ensure that you have the agility to support a culture of continuous improvement, addressing business, market, and fund variations that are as yet unimagined.

But in the meantime, there are three steps you can begin taking today that will move you toward operational excellence:

1. If your firm employs an outside administrator, take ownership of your numbers by driving how the providers set up each product, and by verifying – on an ongoing basis – that the calculations are correct.
2. If your firm maintains hundreds of Excel spreadsheets for in-house numbers tracking, initiate getting out of Excel!
3. If you use general ledger accounting packages like QuickBooks, remember that they cannot be expected to solve complex problems. While general ledger accounting is a prerequisite for portfolio and partnership accounting, it’s not sufficient for an alternative investment firm’s requirements.

For more information, download the full white paper How Can Alternative Investment Firms Attain Greater Business Agility? By Aiming For Operational Excellence.