Case Study: Streamlining Performance Calculations and Vendor Due Diligence

Company: Large private markets fund of fund manager with $100 Billion in AUM
Location: Global
Financial services sector: Private markets

Background

A large private markets fund of fund manager sought to enhance its data and performance infrastructure to comply with evolving regulatory requirements, increase investor demands, and improve reporting accuracy.

ACA’s investment performance team collaborated with the firm to assess existing gaps and implement tailored solutions to support compliance, reporting, and marketing efforts.

Challenge

• The firm’s existing performance system was not able to meet the requirements of the U.S. Securities and Exchange Commission’s (SEC’s) Marketing Rule.
  • Net investment rate of return (IRR) calculations: The client’s legacy system could only calculate gross investment-level performance. However, the Marketing Rule requires net-of-fee returns for compliance. The firm lacked an automated process for generating net IRRs across assets, resulting in inefficiencies and potential compliance risks.
  • Vendor due diligence: The firm's existing performance system was unable to calculate returns excluding the impact of the subscription line or generate deal-level gross and net returns required for compliance with the Marketing Rule. They needed assistance evaluating and selecting a performance vendor capable of automating these calculations.
• Performance calculation outsourcing for marketing: The firm was expanding into the separately managed account (SMA) business, having historically focused on fund-of-funds. To support this transition, they sought expertise for marketing material requests on a retainer-style basis. Portfolio managers and sales teams sought custom performance reporting, including investment track records, segmented performance data, and asset-class-specific return models.

Solution

• Automate net IRR calculations: We developed 10 customized automated spreadsheets to streamline the calculation of net IRRs. These templates allowed the firm to efficiently load accounting system data and generate net performance figures for compliance and marketing purposes.
• Vendor evaluation and recommendation: We conducted due diligence on multiple performance vendors to assess their capability handling deal-level performance calculations. Through rigorous evaluation, we provided a detailed report with recommendations for the most suitable vendor to meet the firm's needs.
• Custom performance support for marketing & due diligence questionnaires (DDQs): To support the firm's expansion into the SMA business, we developed tailored investment track records that aligned with regulatory requirements and investor expectations. By ensuring accuracy and consistency across asset classes, we were able to enhance the firm’s marketing materials. Additionally, we provided strategic guidance to improve reporting efficiency, data quality, and compliance for future marketing initiatives.

Results

With a resource-constrained performance team and limited experience in the SMA market, the firm faced challenges meeting regulatory and industry best practices. By leveraging our support, they were able to access performance expertise they did not have in-house without the significant time and expense required to hire and train staff in calculation methodologies and SEC Marketing Rule requirements.

We were also able to enhance the firm’s data and performance infrastructure to meet SEC Marketing Rule requirements. Through the creation of custom return templates and assistance selecting a performance vendor, we enabled the firm to calculate a broader range of performance metrics. These improvements not only brought the firm into compliance with the Marketing Rule, but also strengthened their marketing collateral, supporting investor engagement and SMA onboarding.

Conclusion

By outsourcing complex performance calculations to ACA and leveraging our expertise in performance systems, the firm streamlined its reporting process while ensuring compliance with regulatory standards. The collaboration allowed their team to focus on core responsibilities while achieving company-wide objectives. With an improved performance infrastructure and a more efficient approach to investor reporting, the firm is now better positioned for long-term success and growth.

How we help

ACA is the only governance, risk, and compliance (GRC) firm that combines regulatory compliance expertise with deep investment performance knowledge, making us uniquely positioned to assist firms navigate complex performance calculations, such as those outlined in this case study.

Whether you are looking to launch, grow, or protect your firm, utilizing our Managed Performance Services solutions allows firms to leverage unparalleled expertise, scalable solutions, and significant cost savings. Additionally, collaborating with us can enhance service offerings, strengthen risk mitigation, simplify the intricate investment process, and seize opportunities for growth and innovation. Our services include:

• Task-Based solutions: We provide targeted support for performance calculations, composite management, custom track record creation and maintenance, generating performance data for marketing materials, fee calculations, risk metrics analysis, and staff augmentation.
• Private fund reporting support: Our services extend to supporting private fund reporting and Institutional Limited Partners Association (ILPA) reporting, helping firms align performance metrics with investor expectations and industry best practices across private funds and liquid funds.
• Global Investment Performance Standards (GIPS^®) compliance and verification support: We can manage the entire GIPS compliance process, including composite management, account and composite level return calculations, outlier review, policy updates, GIPS report updates, and verification oversight, providing a complete solution for firms seeking full GIPS compliance management.

Leveraging our expertise allows firms to enhance accuracy, improve efficiency, and mitigate risk while streamlining the investment performance processes. Start a conversation with us today to learn more.

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