Key considerations for evaluating shadow services options

Tuesday, December 15, 2020 | By Bill Bormann, Director, Business Development

Key considerations for evaluating shadow services options

How does an alternative manager benefit from shadow services? Shadow accounting is when a manager directs or performs in-house accounting books and records to reconcile or shadow the books and records maintained by a third-party administrator. A manager performs these tasks for a variety of reasons—they may be required to by fund documents, or they want control and fast access to investment results, or they believe that they have a higher level of expertise in the strategies behind their business than the record keepers.

Managers take a number of different approaches to shadowing. Some use simple internal tools, such as Excel, while others use market available applications (often linked to internal custom development), or they outsource. When an asset manager is considering making a change, they should fully evaluate their options as they consider changing how they shadow their administrator. Available technology and internal applications are often very costly and complex to maintain, and they can distract the manager from core competencies—raising assets and managing investments.

If the choice is to keep the status quo, the options are to update the current environment with new software or build a new platform with internal or external resources. Both of those options are costly and risky—and they ignore the fact that these platforms are already built, are accessible and have capacity. Choosing to instead outsource shadow services to a third-party provider offers several benefits. With a provider like SS&C, a manager can leverage our technology, expertise and our large capacity. Outsourcing also allows managers to get out of the software/technology maintenance businesses, and focus more on their strengths—making good investment decisions.

Outsourcing can also position managers to better respond to disruptions. With major events this century including 9/11, Superstorm Katrina, the 2008 financial crisis, Superstorm Sandy, and the COVID-19 pandemic, the most unsurprising thing about the resulting disruptions is that disruptions are to be expected and thus should be planned for in the future.

To learn more about the different options for shadowing an administrator, listen to our recent "Shadow Services Revisited in the age of Disruption - Build, Buy or Outsource" webinar.

Asset Management, Fund Administration

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