A number of good packages are available from vendors such as SEI Archway, AltaReturn, FundCount, Eton Solutions, Addepar or Asset Vantage. But how do you know which one is specifically right for you? The purpose of this guide is to help you better assess that question by breaking it down into four key areas to focus on and to help you narrow the field of choices.

In a nutshell:

• Check to see if the system supports each asset class you require
• Make sure the system follows your privacy standards
• Consider the advantages a unified general ledger has over alternatives

Alternative Asset Management

Family offices tend to have more sophisticated and unique portfolios compared to other types of investment manager groups. Alternative assets not only vary from traditional assets, they can come with idiosyncratic requirements that a software package may or may not be set up to handle.

Most developers and software providers support most, if not all asset classes. However, this is an area where you will want to take a close and careful look. Supporting an asset class and actually specializing in it can mean the difference between just having a placeholder field and work-arounds available, compared to having robust reporting capabilities dedicated to that asset class. Each type of investment has unique functionalities and features that must be accounted for individually. Crypto, for instance, uses far more decimal spaces than say equities. If these are not properly addressed in the system, reporting can suffer. Imagine how skewed a Bitcoin performance report would be if only two spaces after the decimal were available in the software.

When an asset class has been meticulously gauged and the properties of each and every class are considered to ensure that it is fairly represented, the payoff comes to fruition when charting and generating reports.

Privacy Considerations

Data sensitivity is increasingly an issue in an era where cloud storage is prominent and large providers such as Amazon, and even the government, potentially have access to information you would rather not have privy to prying eyes. Cloud storage can be very secure, but if you still hold some level of concern, look for a provider that makes it possible to store all your data on your own premises, giving you complete control and sole access to it.

Single Source of Truth

Data integrity has always been at the forefront of the accounting industry for obvious reasons. When inputs are compiled into separate ledgers, however, it’s not hard to see how the information can be at a minimum, hard to assess when pulled from those different ledgers in the reporting process. A unified accounting methodology addresses this by using a single book, the general ledger, providing the end user with what is known as and can be relied upon as a single source of truth.

A unified ledger is more flexible than a multi-book system that has separate general, sales and purchase ledgers. You don’t need to reconcile books in order to run a report. Moreover, you can drill down to view raw data and see how numbers were calculated in any report.

Continuous Accounting

Traditional accounting is a closed-book system. Reporting is typically run at the end of each quarter when the books on that quarter are closed and the official numbers are released. This methodology comes with limitations. Management decisions require data and if the data is based on last quarter’s numbers, new developments simply cannot be factored in with any reasonable level of accuracy. Estimates are of course possible, but nothing is really known for a fact until the books are closed and the reports are run.

One advantage is that books don’t have to be closed to run reports. Reports can be drawn at any time since there is no need to wait until the other ledgers are balanced.

We live in an era of disruptive technology and accounting is being impacted by new solutions along with many other conventions. Continuous accounting is an innovate approach to accounting that gives you a real-time look at the data, no matter where things are at in the accounting cycle. This takes all the guesswork out of the decision-making process and provides a crucial edge over firms that only have access to current information. Before making your own decision on which accounting package to choose for your office, make sure the vendor you are considering offers this inventive approach.

How the Landscape Stacks up

Family offices on the lookout for back-office system support are faced with two basic categories of choice.

The Unified Platform Choice

The first category is primarily comprised of FundCount and SEI Archway, both of which have unified platforms, with accounting, partnership, and portfolio, all in one place. Why this is important will become clearer once we examine the second category of solutions available to the family office.

Some of the feedback we’ve received from clients and prospects is, that there are two big problems they have experienced with SEI Archway’s general ledger. First, unlike FundCount, it only consolidates US dollars. Offices that own any foreign entities simply must find a work-around outside the system.

Second, it deals with simple ones very effectively, but it’s not very friendly when it comes to large, complex, multi-entity structures. For instance, if you want to go back and change the valuation of a private equity holding, something which is done each year, it is necessary to go in to the books of each inter entity and then close them all out. We are told it can take up to four hours per entity and if you have 50-60-70 entities, this can mean a huge amount of work that ends up standing in the way of getting to reporting.

The Hybrids

The second category are the software/service companies. These include companies such as Eton Family Office, Maestro, and then companies like Addepar. Clients consider Addepar more of a portfolio reporting solution that focuses on large institutional fund requirements and doesn’t have a strong general ledger required by many family offices.
These solutions can have glossy and quite impressive reporting presentations, but users have complained they have run into issues both with general ledgers and with the fact the software doesn’t work together in a single, unified system. Common issues are that general ledgers are often in need of repair and because the software isn’t integrated, people are required on the back end to integrate and repair data. Once a human element is introduced, you end up with bugs and errors.

A Word of Caution

If we could offer up a word of caution as you navigate this landscape, it would be to be careful when it comes to being wowed by flashy reporting, charts and graphs with no real substance to the accounting and complex behind the scenes calculations.

Many solutions define the problem of accounting and analytics as a visualization obstacle. Improving the visualization of a data problem does not actually solve it, however, it only redesigns it. Some firms raise a ton of money from private equity and invest heavily in beautiful looking user interfaces and impressive looking reports, but fail to solve the routing problem of making use of disparate sources of data from different asset classes. FundCount developers and leaders at the firm take the position that it’s actually a structural problem most users need to solve for, not a visualization problem.

In other words, family offices investing heavily in private equity – as most do – may wish to actually understand how systems actually support this asset class, not just look at the end product sample reports, which may have errors. When touring demos, try to understand how transaction activity is captured and tracked (capital calls, contributions, distributions, changes in ownership structures, aggregation of this data). The user interface and final report look and feel are important, but they hardly matter if the data is full of errors. It’s the old “beautiful report, bad data” issue that you most want to avoid here.