Case study: hedge fund solves its position breaks reconciliation challenges and other reconciliation headaches

$8B hedge fund streamlines its reconciliations with middle and back-office co-sourcing solution from Linedata Global Services.

Daily reconciliation of cash, positions, and transactions is a major challenge for operations teams at hedge funds and other investment management firms. Linedata offers a range of outsourced and co-sourced reconciliation solutions, including position breaks reconciliation. Learn how one hedge fund solved its recon challenges with Linedata’s help.

Starting each day with verified cash and positions is a major operational challenge for many fund managers, particularly those reliant on manual, Excel-based practices.

Our client, a multi-strategy hedge fund, regularly failed to meet its 8 AM reconciliation deadlines, even though its analysts started work at 5 AM. Tight deadlines left little time to double-check their work, and manual processes and human error resulted in numerous daily breaks. The situation was untenable, particularly for a firm with major growth ambitions.

What reconciliation solution did Linedata offer its client?

To address these challenges, the fund turned to Linedata’s reconciliation solution. We assembled a dedicated team of operations professionals, based in New York and offshore, whose experience was tailored to the client’s requirements. They use our proprietary, automated reconciliation tool and transparent, fully documented processes to provide our client with accurate, three-way reconciliation before the start of each New York business day.

Linedata’s reconciliation solution, part of our Middle and Back Office Services offering, includes position level (quantity and market value), cash, transaction, and P&L reconciliations between the fund’s accounting system, its administrators, and the street (prime brokers, OTC counterparties, and custodians). Our follow-the-sun model provides 5x24 support.

How did Linedata’s reconciliation solution help improve operational outcomes?

Our client has said goodbye to daily reconciliation headaches and scaled its business significantly while reducing risk from error-prone manual processes. Our experts act as an extension of the client’s team and collaborate to identify, investigate, and resolve breaks.

The fund’s executives can manage and monitor the reconciliation process with management-level dashboard reporting that includes completion status, aging of breaks, material issues, and time series/trend analysis. The fund’s operations team also has direct access to our reconciliation platform to review, modify, and research breaks. 

What is position breaks reconciliation?

Position breaks reconciliation involves verifying that a fund manager’s recorded positions match those held by external parties such as brokers, custodians, or counterparties. This vital process helps maintain portfolio data accuracy by comparing the recorded number of securities held by the asset manager with the records of external parties. 

Reconciliation aims to identify and resolve discrepancies (known as “position breaks”) between the fund manager’s books and external parties involved in holding the securities. It helps ensure alignment between internal records and external sources and promotes accuracy and transparency in financial records and reporting.

What is the process for conducting position breaks reconciliation?

Position breaks reconciliation involves comparing the fund manager’s recorded positions against those of external parties on a specified date. Discrepancies, or breaks, are identified and investigated to determine their cause and rectify any errors. This can be done by internal teams, but many firms prefer to outsource this important but non-core operational function. Outsourcing or co-sourcing solutions, such as Linedata’s reconciliation solution for hedge funds, private equity firms, and private credit firms, helps asset managers free up internal resources for core business activities.