Traditionally, Investment Management as an industry has heavily relied on Excel as a foundational tool for fund administration and other necessary data entries. However, with the accelerated digital change we are witnessing in the market, the limitations and negative side effects of using Excel are becoming more prominent. In this short paper we explore why asset managers in alternative investments should consider moving away from Excel in their processes as much as possible.
Excel is naturally error-prone
For decades, Excel has been a pillar of financial management due to its versatility and relatively easy usage statistics. Unfortunately for people preferring Excel over any other system, the increasing complexity of alternative investments such as private equity, real estate, hedge funds and venture capital have outrun the capabilities of this spreadsheet modelled software. A fundamental issue when using Excel in your fund operations and administration is its susceptibility to human errors. The frequency of these issues tend to increase , particularly when dealing with extensive volumes of financial data.. Having manual entry errors poses a major threat for trustworthy reporting to clients as well as making errors in fund calculations. Formula errors, misplaced data or accidental deletion of records without noticing can potentially cause major losses for your organization.
Alternative Investment institutions are more often than not handling extensive datasets and managing complex financial structures on a day-to-day basis. Excel unfortunately has vast limitations when it comes to managing large volumes of data. These limitations hinder the growth and scalability of your operations, leading to below-par performances and financial reporting to clients.
Data security and regulatory compliance:
In the private equity sector, where security and trust form the bedrock of operations, Excel becomes an unsuitable tool for playing a significant role in your data and fund management processes. The main reason for this is its lack of access control and the fact that it is quite easy to make critical alterations to the data, without restrictions. Especially in an industry where confidentiality and integrity are entangled in its roots, financial data reporting systems should have robust access control, as well as a proper audit trail of any additions or edits made.
Furthermore, the regulatory landscape is becoming more complicated and stringent. Excel lacks the complex compliance mechanisms that you require in order to avoid any potential breaches of the ever-evolving compliance regulations in private markets. Any breaches of these kind can cause major financial and reputational damage which you want to avoid at all costs.
Shifting towards specialized Fund Administration Software:
Above compelling arguments have paved the way for a slow revolution in fund administration and management. Specialized, innovative and specialized fund administration software that is specifically designed for the complexities of alternative investments have taken over most of Excel’s previous functionalities. These systems offer solutions for all branches of alternative investments firm’s activities, addressing the shortcomings of Excel as stated above. Moreover, advanced analytics, customisable reporting templates, and automated report generation are pivotal advantages offered by specialised fund administration software. These features enable investment managers to conduct sophisticated analyses and generate comprehensive reports for both internal and external stakeholders with ease.
Embracing continuous improvement
Making your organization less and less dependable on legacy systems such as Excel is becoming increasingly urgent. Making the transition to state-of-the-art technologies is not a matter of keeping current with developments but rather empowering your organization to stay ahead of your competition and thus optimizing operational efficiency. Get in touch with me to learn more!
By Ron Mak
Digital transformation specialist LeadingMile