Smaller and nimble allocation and expense management platforms versus the giant ERP players
Fund accountants within hedge funds and private equity, and emerging managers all have the same headaches and pain points when it comes to finding affordable solutions for allocations, apportionment and expense management needs. Throughout this article, we’ll be exploring the differences between smaller and nimble platforms (Davids) and the giant ERP players (Goliaths). Hint: the biggest platforms are not always the best…
Looking at the larger ERP players such as Concur, SAP and Oracle, these are designed to deal with larger corporations and the approach is an “enterprise” offering, which also makes licensing costs more expensive.
Other observations around these providers are they remain fairly inflexible when it comes to offering clients a choice of configuration and customization, the latter being prohibitively expensive to the client.
Integration options are also limited and any actual development work, such as an API or SFTP connectivity with the clients’ existing IT infrastructures, remains uneconomical to the client.
These enterprise expense management platforms are not ideally designed to serve how fund accounting managers need to allocate and apportion expense to funds, fund of funds and numerous legal entities.
Some may claim to offer this functionality, but in reality, it’s a “one size fits all” approach, to what is in most cases, a highly complex and ever changing landscape. The ability to add and manage entities, funds and sub-funds is cumbersome and not intuitive for the user.
The main issue with a number of these enterprise platforms is that they were not designed to fit the purpose of allocation, apportionment and expense management for fund managers. These functions and features are being retrofitted, to a greater or lesser degree of success, as measured by the user experience.
In order to better serve the emerging, smaller or mid-size funds, say from $250m up to $25BN AUM, there are a plethora of applications out there attempting to serve this growing market.
There are few solutions provider out there, however, that have attacked the problem from the perspective of digital transformation to the operating model and ensuring licensing costs are kept relatively low.
These applications take account of existing IT infrastructures (i.e. don’t throw the baby out with the bathwater — or require wholesale and structural changes to what exists today) and integrate via API or SFTP seamlessly.
Their main benefits are a flexible, modular approach to expense management, along with a reduction in email traffic, approvals and authorities workflows. They also maintain a visible audit trail and ensure all users are engaged “in app”.
By providing a more inclusive in-app user experience, these applications enable for a more rapid digital transformation of the operating model, thus. reducing overheads and the expensive use of full time employees in managing this process.
The reliance on spreadsheets for the retrospective allocation and apportion expenses to funds and entities adds risk to the business, as errors are more prone to be introduced with keyboard data entry (e.g. typing in a vendor invoice that was emailed in as a PDF attachment) or in acquiring management approvals and authorities for invoices via an email trail, which has its implications in degrading the audit trail.
In-app functionality for accepting electronic invoices from all vendors/suppliers directly, plus an ability to logically and seamlessly break out expenses against the fund and entity structures involved, along with credentialed user sign off, within a workflow driven application, means that its possible to achieve excellent results and reduce emails, attachments and any re-keying of expense data.
By tying these more “nimble” apps for expense management, allocation and apportionments into accounts payable systems, means that payments processing is also streamlined.
These dedicated and focused applications provide more flexibility of implementation, greater transparency on workflow and any bottle necks, plus more accurate allocating capabilities. All this mitigates the risk of regulator fines.
On balance, allocation, apportionment and expense management applications that fall under the “David” banner, make a better choice for clients looking at means and ways to no longer rely on cumbersome spreadsheets and human, manual efforts to deal with the complex tasks involved and remain compliant.
David Wins. Take a look at Resolvr if you’re interested in learning more about a good example of a “David” expense management and allocation software.
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