Expense Allocation System Helps Alternative Investment Managers Comply with SEC Priority

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IntegriDATA EAS Expense Allocation System automates fund expense allocation, helping private equity and hedge fund managers comply with a new focal point of SEC scrutiny

IntegriDATA Financial Technology Consulting and Software

IntegriDATA

The SEC has explicitly warned private equity and hedge funds that expense allocation will be an investigative priority

IntegriDATA, a financial technology software company, introduced today EAS Expense Allocation System (“EAS”), a revolutionary new product that allows alternative investment managers to accurately and efficiently allocate expenses across funds and entities. EAS eliminates the inherent risks of manually allocating expenses using Excel spreadsheets and helps investment managers ensure regulatory compliance.

Expense allocation, or the process of distributing shared costs across management company and funds, has recently become a regulatory focus of the Securities and Exchange Commission (“SEC”). SEC examinations, initiated by Dodd-Frank, found private advisors were inadvertently misallocating expenses in breach of their fiduciary duty. As a result, the agency explicitly warned private equity and hedge fund managers that expense allocation will be an investigative priority going forward. The SEC has backed up its warnings by aggressively pursuing firms that misallocated expenses, resulting in penalties and settlements in the tens of millions of dollars.

Taking a proactive approach, three of IntegriDATA’s alternative investment clients (over $60B combined AUM) engaged IntegriDATA to build a software solution that would automate their expense allocation process, reduce the opportunity for misallocation, and ensure SEC compliance.

“One of the most difficult aspects of allocating expenses for our clients was managing and consistently applying allocation rules spread across multiple Excel workbooks,” said Ted Haslam, Product Manager at IntegriDATA. “EAS solves that problem and intuitively consolidates the expense process from invoice entry to allocation and ultimately management company reimbursement.”

Across the industry, alternative investment managers struggle with the complexity of expense allocation. Each one of an investment manager’s funds has a unique legal agreement defining what expenses the fund will participate in and how its share of expenses are allocated, often using variable metrics like fund assets under management. Most investment managers perform allocations manually in Excel, but trying to keep track of these complicated rules and calculations in a spreadsheet is a time-consuming process that lacks controls and is notoriously difficult to report on or audit.

“We built EAS with a consortium of three of the industry’s leading alternative investment managers. As a result, we’re confident EAS can tackle any allocation nuance or complexity,” said Mitch Schulman, Chief Executive Officer of IntegriDATA.

To meet the diverse needs of the sponsor firms, IntegriDATA designed EAS to handle multifaceted allocation rules and integrate with multiple accounting systems. EAS holistically manages the expense allocation process by capturing invoices, allocating expenses, and booking the results into the client's general ledger. System controls and automated expense processing ensure allocation accuracy and auditability.

Expense Allocation System (EAS) Features Include:

  • Consolidated Allocation Rule Library
  • Invoice and Vendor Management
  • Allocation Processing Automation
  • Intercompany Expense Subledger
  • Budget Forecasting
  • Automated Journal Entry Booking
  • Robust Reporting and Audit Trails

Availability: Expense Allocation System (EAS) is available for license from IntegriDATA. More information on IntegriDATA EAS Expense Allocation is available at http://integri-data.com/expense.

About IntegriDATA Business & Technology Solutions, LLC

IntegriDATA is a financial technology software company and consultant, dedicated to helping the investment management industry improve operational efficiency and reduce risk. Founded in 2002 by financial industry experts, IntegriDATA is a boutique firm specializing in payment automation, collateral management, expense allocation, and financial services infrastructure consulting. IntegriDATA clients include hedge funds, private equity, fund administrators, institutional investors and mutual funds. IntegriDATA software helps the investment management industry service over $250B AUM.

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Nicholas Molina
IntegriDATA Business & Technology Solutions, LLC

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