Advancements in Investment Reporting are Helping Family Offices Improve their Risk and Portfolio Management Strategies

Date: May 23 2023

Private Wealth Systems

Private Wealth Systems, a global financial technology company that is revolutionizing the way private wealth is analyzed, reported, and managed. Private Wealth Systems has been named a FinTech Top 20 Company by American Banker, and Top FinTech Innovator by CIO Review.

Advanced investment reporting solutions that provide a highly accurate and consolidated global picture of end-to-end wealth empower family offices to successfully mitigate investment risk and ensure the highest returns possible.

Family offices are using the latest advancements in investment reporting to improve their ability to mitigate risk and provide comprehensive portfolio oversight. Here are eight key focus areas where improved reporting is having an impact:

  1. Identifying Potential Risk Factors
    Investment reporting solutions that aggregate accurate data from all asset classes across all ownership structures allow family offices to easily identify areas where investments may be overexposed. This enables family offices to take steps that mitigate potential risks before they have significant adverse effects on portfolio performance.

    Advanced reporting solutions also support improved risk management with targeted data and insights. For example, if an office is evaluating a new Series A private investment for a biotech firm in the southeastern U.S., it can see current exposure and risk to early-stage biotech firms in that same area of the country. It can also compare the current and expected allocation to the target allocation. This supports better decision making and enables family offices to identify potential hedging strategies that will minimize downside risk.
  2. Tracking Performance
    Most investment reporting solutions don’t correctly calculate performance: According to the Global Investment Performance Standards (GIPS), most systems calculate an “approximation of performance” and not actual performance. Understanding how a system calculates performance is critical to trust in decision making.  

    Tracking investment performance with an advanced, accurate investment reporting solution allows family offices to make smarter decisions about how to manage portfolios and achieve investment objectives. They can quickly identify investments that are underperforming, and course correct by making changes to investment strategies or reallocating capital. This can include divesting from underperforming asset classes or allocating more capital to more promising opportunities.

    Tracking the performance of investment managers is also critical for family offices. They require solutions that allow them to see which managers are doing well, and which are falling short of expectations. Family offices should be able to identify which managers took high amounts of risk, and if that risk paid off or hurt performance. They should also be able to identify managers who are charging active manager fees but are passively managing investments by simply replicating an index.  
  3. Analyzing Net Hedged Exposure
    Advanced investment reporting solutions provide functionality that allows family offices to view and analyze their net hedged exposure regardless of asset class or currency. Offices can improve risk management by associating a derivative instrument with its underlying position(s) to see gross and net hedged exposure.
  4. Diversifying Investments
    Diversification enables family offices to reduce the risk of loss due to any single investment or market downturn by ensuring investments are spread across multiple asset classes, strategies, themes, securities, and geographies.  Advanced investment reporting solutions support diversification by providing sophisticated tools that enable family offices to identify areas where they may be overexposed and would benefit from spreading their investments among additional assets.
  5. Analyzing Currency Effects
    Sophisticated investment reporting solutions capture trade, settlement, and base currency on every event to ensure the highest level of accuracy. They also store exchange rates every night to deliver accurate analysis on currency vs. security gains. This supports the ability to select a reporting currency at run-time, which improves risk management by allowing family offices to analyze currency effect on investments and balance sheets.
  6. Monitoring Cash Flows
    Family offices must have a clear picture of cash flows including income, expenses, and capital gains and losses to ensure there is sufficient liquidity to meet financial obligations and make informed investment decisions. Investment reporting solutions designed to meet the exacting needs of sophisticated investors provide end-to-end insights into cash flow so family offices can make smart decisions and spot issues before they impact portfolio performance.
  7. Rebalancing Portfolios
    Over time, the composition of a portfolio can change due to market fluctuations or changes in investment objectives. Family offices are responsible for rebalancing investment portfolios to maintain the desired asset allocation and risk profile. Sophisticated investment reporting solutions provide family offices with the accurate data required to identify areas where portfolios may be out of balance so they can adjust family portfolios accordingly.
  8. Performing Due Diligence
    Investment reporting solutions providing highly accurate data enable family offices to confidently conduct due diligence on potential investments. Using the solution to research investment performance uncovers potential risk factors and allows offices to make better investment decisions.

While this is by no means a complete list, these areas should be identifiable among family offices as some of the most important ones where enhanced reporting frequency, accuracy, and depth can help move the needle in supporting day-to-day activities efficiently.

To effectively manage investment portfolio risk, family offices require access to investment reporting solutions that are just as sophisticated as the families they serve. Solutions that provide a highly accurate, consolidated picture of end-to-end wealth along with advanced reporting and insights empower offices to maximize returns and help families achieve their long-term investment objectives.