The importance of robust fund oversight has been in the spotlight for many years, but this focus has increased of late due to multiple factors – the pandemic, the rise of ESG funds, regulatory requirements around fair value and investor demands for more transparency.
Of particular interest is the process of net asset value (NAV) oversight, an essential tool in assessing the daily value of a fund.
The pandemic has shown just how important this oversight process is. It has also demonstrated the need to have a reliable alternative source for a ‘contingent’ NAV – for business continuity, regulatory compliance, and good governance.
Meanwhile there has been a rapid rise in impact investing and the demand for sustainable products which has led to greater regulatory scrutiny on ESG funds in Europe and the US.
This is why we commissioned this research project – to assess the different approaches adopted by asset managers and the operational challenges they face both generally and for the NAV oversight process specifically.
The results give reason for encouragement but also show that more must be done to improve the process. For example, almost all asset managers we surveyed use some form of alternative NAV – however, too few of them use systematic NAV oversight approaches or have back-up/contingent NAV or even full shadow NAV capabilities.
The use of spreadsheets for NAV oversight is a worrying finding as is the relatively low use of exception management and workflow tools.
But there are also positive findings to suggest a more efficient approach to NAV oversight is likely soon. Firms are happy to use third parties (ManCos, fund administrators and tech vendors) for either primary or alternative NAVs. And few (just 18%) see cost as a barrier to their NAV oversight processes.
This is a defining moment for the industry, marked by rapid technological change, the ‘mainstreaming’ of ESG, and changes to the nature of work. How firms handle these challenges and opportunities will define their future success.
With oversight and ESG in the spotlight, there are parallels with the evolution of Ucits, where significant industry-wide effort to strengthen rules and implement improved processes has increased investor confidence and made Ucits funds an international gold standard for investment. Perhaps in five years’ time, we will look back at this (post-)pandemic period as a similar turning point.
Aldric Dupaïs, Global Head of Fund Services at Linedata
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