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Case Study: Portfolio Reconciliation

for a hedge fund manager
Investment Fund Reconciliation

Our customer gathers market data from several sources and reconciles discrepancies to calculate a coherent portfolio valuation. This was an extremely laborious process, in some cases taking a whole week of boring and error–prone visual inspection.

With our custom software, the fund manager now pushes a button and lets the software do the hard work.

User manual

The system is implemented as a VBA Excel add–in.

Excel VBA add–ins are installed simply by copying the .xla file to the user’s %AppData%\Microsoft\AddIns folder, and then loading it from Excel’s Tools menu. So the users can install this add–in without needing to call their IT helpdesk.

We delivered the system with a 24–page user manual describing in detail how to install the add–in, how to configure options such as input formats and tolerances, how to run the reconciliation and interpret its results, and how to handle errors.

The system compares position, price and P&L figures received from several sources, and highlights discrepancies for attention by the fund manager.

Error summary

As well as these discrepancies, other error conditions can also arise. For example, an instrument may be missing from one data source, or it may be listed with the wrong currency. These errors are highlighted directly in the data, and summarised at the end of the reconciliation.

Configure tolerances

Small discrepancies are to be expected since separate data sources may report on different days, and these minor differences can often be ignored. To allow for this, the fund manager can configure tolerances — a discrepancy within the tolerance does not generate a warning.

Different organisations often use different identifiers for the same instrument. Our system recognises these variations using sophisticated pattern matching techniques.

This reconciliation used to be an extremely laborious process, in some cases taking a whole week of boring and error–prone visual inspection. Now our system does the hard work, and the fund manager need only investigate any highlighted discrepancies — and can do so with a clear head.

The system does automatically in an hour what a fund manager used to spend a week doing, every month. We don’t know what the manager’s salary was, but if we assume $60,000 a year then his productivity improved by $15,000. We can add to that the cost of mistakes that he no longer makes, and the reduced effort needed to train his replacement when he left the company. We built the system for $17,000.

This system paid for itself in one year.