Whether you are a Board Member, CEO, COO, CFO, Controller, Accountant or a staff member, you are bound to encounter situations where you realize you need more information or a greater understanding regarding operational topics such as financial reporting and related disclosures, fair valuation guidance and accounting for investment activity.
Here at Commonfund, we have a seasoned team of operations specialists who bring many years of experience in financial operations. Our team members frequently field questions from our clients and investors and their advisors related to accounting and reporting for their Commonfund investments. Over time, we have identified focus areas where we receive the most inquiries. We decided to tap our collective experience to document what we believe to be the “Hot Topics” of investment operations. The common theme across each of the four topics is the end-of-year audit. With the audit being the end target, most of the questions that come up throughout the year help a client to better understand their investments within the portfolio, which eventually leads to a successful close of the fiscal year end.
Following are the “Hot Topics” we are asked about frequently, along with some information on the resources we have available at Commonfund to support our clients’ needs in these areas.
The name of the game nowadays is easy online access to the information you need, delivered in a secure, efficient and easy-to-understand manner, to help keep your organization running smoothly. Commonfund’s online reporting system (“Portal”) provides a vast amount of information related to our investors’ portfolios. Portal provides data at your fingertips, including investment performance, daily positions and transactions, monthly and quarterly investment reports, information on fair valuation and other audit-related information. Investors can run reports in the following areas: actual versus target allocations; current and historical performance including portfolio-specific policy benchmarks; detailed transactions; and fund holdings. Investors also have the flexibility to customize reports to meet their specific needs, and many reports can be downloaded and imported into Excel for further formatting and/or analysis. Also available on Portal are monthly and quarterly statements, Schedule K-1s, and various fund notices.
Additionally, investors have access to current economic and investment commentary. We encourage our investors to take some time to explore the resources available on Portal. Look for the blue banner and drill down on the various tabs into the specific reporting and tools. There may be useful reports that you didn’t even know existed! Of course, our Investor Services and Relationship Teams are always available to answer questions you may have and to guide you to specific information.
Being able to support “the numbers” is one of the common themes we hear when it’s time for an organization to close their books. We have created a comprehensive audit support area within our Portal which provides our investors and their auditors with the tools they need to support the accounting information reported for a particular closing date. This includes a comprehensive audit package containing portfolio summaries, details of transactions executed during the relevant time period, and other information needed for financial reporting. The Documents section of the audit support tab includes monthly/annual custody statements along with the audited financial statements of the Funds. We regularly enhance the content of the Portal to improve the audit support services we offer to our clients. In addition to the audit packages, we also provide other key information impacting financial and tax reporting, such as the investors’ percentage ownership of our Funds and a report detailing transfers for foreign corporations for IRS Form 926. SSAE SOC-1 controls reports and related bridge letters from the Funds’ administrators are also available upon request.
Another common area of focus amongst those responsible for investment portfolio accounting is the month-end reporting cycle. “I need to close the books ASAP!” is a common refrain in these circles. Here at Commonfund, we have developed cost accounting reports to help clients track their cost, market value, and activity month-over-month at the investment level. Our closing period process assists our investors in recording investment activity into their ledger. Tracking beginning and ending cost & market value, unrealized and realized P&L, income and fee activity helps to support and report on portfolio performance over the period. The Cost Accounting Reports help to tell a story from an accounting perspective, which in turn can be delivered to an auditor to support the period-over-period change.
Accounting and regulatory guidance surrounding fair valuation is constantly evolving. Our Operations teams and Fair Valuation Committee stay up to date on the latest requirements through ongoing review of industry standards and regular interaction with our auditors, compliance consultants and other partners. In addition to their time at Commonfund, our team members have developed expertise in this area through many years at audit firms, fund administrators and regulators.
While investments in funds are generally valued at the NAV per unit reported by the fund, it is the responsibility of the investor to understand the valuation policies of the fund investment which support the fair value and impact financial statement disclosures. Commonfund provides information that aid in the due diligence and financial reporting of our clients. In addition to the detailed valuation and pricing policy disclosures contained in our funds’ audited financial statements, we also issue quarterly detailed look-through holdings reports containing full position-level pricing and fair value leveling information. Additionally, we provide pricing and valuation overview documents that include details on our pricing process and the internal and external firms, teams and individuals involved in this process. Finally, as part of our extensive operational due diligence process, we review in detail the valuation policies and procedures of third-party fund managers that are part of our fund and investor portfolios to ensure adherence to best practices. Our Operations staff is always available to answer any questions that our clients or auditors may have regarding fair valuation of their portfolio holdings.
Fiduciaries play a critical role in the oversight of the endowed portfolio that supports the mission of their organization. It’s important to remember that high quality operational support should not be overlooked, as it is an important contributor to long term success. At Commonfund, we take pride in the resources and people we have assembled on our operations team to support our clients.