When asset management firms expand their portfolios, their legal entity structures become more and more complicated, with complex ownership connections and multiple tax structures across various jurisdictions. In this situation, asset managers struggle with managing all of their investments and investors and fulfilling their administrative work. In addition, this ever-growing complexity in a quickly changing regulatory environment places a heavy burden on the whole organization, including legal, tax and accounting teams.
Many investment firms find themselves hindered by legacy entity management solutions which do not meet their new requirements. Below we get into more detail about why entity management systems are critical for asset management firms, what are the signs that your firm may have outgrown your existing system and how modern technology can help achieve sustainable business growth.
Why Is an Effective Entity Management System Critical for Asset Managers?
Asset managers oversee a portfolio of multiple legal entities and asset classes with many layers of ownership across jurisdictions. This complexity comes with the toll of having to navigate complex structures and maintaining each of the legal entities to ensure their governance, risk and compliance.
With today's regulatory environment requiring greater transparency, private equity firms and other players are under the heavy burden of ensuring timely disclosure, fortified by heavy financial sanctions and the criminal responsibility of key stakeholders. Meanwhile, any delinquent or poorly maintained entity can cause irreparable reputational damage in addition to civil or criminal penalties.
At the same time, asset managers have to operate in a highly-competitive market characterized by lower margins and ever-rising costs. Under these circumstances, investment companies need a robust entity management system to address those challenges and effectively manage the portfolio of assets and entities.
Signs You've Outgrown Your Existing Entity Management System
As financial companies are constantly adding new structures, their existing entity management systems may start to hinder growth instead of helping organizations develop their portfolios. Here are a few signs that your entity management framework is not as effective as it should be, which calls for revisiting and transforming your existing processes.
Compliance is one of the key priorities for any investment firm, so when problems arise due to delayed filings or incorrect data, it is always a question of having a reliable system in place to avoid those issues.
When legal, accounting and tax departments have to ensure compliance for hundreds of entities, manual processes no longer work. With the number of legal entities growing exponentially, it is hardly possible to achieve compliance without automation, calendar reminders, pre-populated templates and centrally stored corporate data.
Ineffective Cooperation Among Departments
When an organization does not have a single source of truth for all of its data, the teams cannot access and share information in real-time and work effectively. This situation leads to duplicative processes and makes the departments maintain their own internal databases, which are often poorly structured and not aligned with each other.
The issues become even more aggravated when entity data have to be requested and sent by email. Such an approach creates bottlenecks and makes the entity management processes inefficient, taking hours instead of minutes to complete.
Relying on Spreadsheets and Paper Documents
In the era of digital innovation, many investment firms continue to rely on the intuitiveness of Excel spreadsheets to run their databases. Meanwhile, there are numerous research data that demonstrate that almost 90% of spreadsheets include errors which can lead to poor consequences and billions in losses, as it happened to JP Morgan during their London Whale incident.
At the same time, a combination of spreadsheets and paper files can make entity data completely unmanageable. Maintaining transactional certificates or a corporate minute book in paper form takes additional resources and time to sign and store the documentation. It also creates heavy demands on the legal departments to provide the information on request.
Data Safety Issues
Managing client's equity involves the need for high-security level and safe practices to store, exchange and process data. When information is stored locally or exchanged by email, it creates an increased risk of hacks, accidental leaks and data loss which can have far-reaching consequences for asset management firms. The need for maintaining a high level of data security is getting even greater when the teams work remotely, which calls for safe cloud solutions with sharing permissions.
How Can Technology Help Asset Managers Drive Growth for Their Organizations
Modern entity management software like Athennian is designed to address the above issues by providing a single source of truth for all entity data accessible from anywhere on any device. When investing firms have a central database for all their data, their departments can access information at a click of a button, generating documents automatically by retrieving information from the system and using auto-populated templates.
With centrally-stored entity data, asset managers have a better ability to manage all of their investors and investments. Entity management software allows automating org charts which provide a birds-eye-view of complex ownership relationships, percentage of ownership and other key entity information. When working with Athennian, asset managers can streamline their reporting across their portfolio's cap tables, exporting associated reports with just a few clicks.
When investment firms are assisted by entity management software, their teams no longer struggle to document and find the relationships between the entities, share information or track their data. Entity management software helps asset managers stay on top of their data which is the key to higher effectiveness, lower costs and better performance.
Find Out More About Digital Tools for Asset Management with Athennian
Entity management software has rich functionality, which is no longer nice-to-have but a must-have for any asset management firm operating a complex portfolio of legal entities and seeking to ensure sustainable business growth. For more information about the capabilities of entity management software and its application for asset management firms, please contact the Athennian team for a customized demo with our expert.