Resolved challenges with Balance Sheet Nettings (FIN 39 Netting & FIN 41 Netting) for a Hedge Fund

Client's Business

The customer is an American global hedge fund and financial services company. It is one of the world's largest alternative asset managers, with more than US$35 billion in assets under management (as of October 1, 2020).

The Challenge

The Trading Subledger data was manually copied from the eGlue report to the Derivative Netting Excel template file for the specific Accounting Period and Business Unit. The account details were then pulled manually into the Excel template. These details had to be maintained manually and often had manual errors. Account numbers were hardcoded in the template file to categorize the Financial Statement line items. Reclass account mapping was also maintained in the Excel template. All validations were done manually. The report had no ability to drill down to the raw data level for easy analysis. The adjustment records for all business units were not consolidated in any file or database. Finally, adjustment entries were manually uploaded to the ERP system.

The Solution

The Fund Accounting team met with the HOC team and was able to map out multiple areas of the businesses where they could leverage process automation. With a strong focus on understanding the Client, their process flow, and the interaction of the systems and the files, HOC probed deep to understand the internal function of the process to bring a stable solution.

To tackle the problem of manual maintenance and calculations, HOC directly interfaced with the Client's Trading Subledger SSAS Model and Account Mapping databases and was able to pull in the required data with the latest version on-demand in ePic. The data was archived in ePic in the raw form and, after performing validations, was used to generate the Reporting Base Data in ePic. With a highly configurable business rule engine in ePic, HOC generated the Journal Entries for FIN 39 and FIN 41 netting adjustments and populated them in the Staging Area.

Numerous validations were applied to the data in the staging to ensure that the Journal Entries prepared are correct. Also, a detailed report was generated for the given accounting month and was sent out to the users in an email. A "Validate" button was made available to the user in the staging area which applied all the validation once again before finalizing the Journal Entries. An "Approve and Post" button was provided to the user in the staging area to approve the Journal Entries and post them directly to the Adjustment Tool using REST API calls.

The Result

By leveraging HOC's industry expertise and ePic platform, the client was able to streamline and automate the Balance Sheet Netting process. The maintenance of the Excel file and mapping data was discarded completely. Users did not have to interact with the Adjustment Tool at all to post the entries as the ePic application was configured to interface with the Adjustment Tool. The man-hours spent on the Netting Process were reduced from weeks to days.

Outcomes and Benefits

  • Fixed the inefficient manual process of calculating the netting adjustments in Excel
  • Automated the calculation and posting of the netting adjustments directly to the Client's Adjustment Tool from ePic
  • Reduced the reporting numbers from 20+ Business Entity reports to a single consolidated report with the ability to generate Entity specific reports