Firstly lets understand what a Fund is?

When I say funds, I mean investment funds in general. These are also known as mutual funds, but there are also hedge funds which are aimed at sophisticated investors.

So what is a Mutual Fund? Well, generally a Mutual Fund is an investment vehicle owned by the investors which enables them to invest on a pooled or collective basis. Mutual funds are also referred to as collective investment undertakings, collective investment schemes or pooled investment vehicles.

These funds are generally run by large funds companies, banks and insurance companies. Some of the largest funds companies have hundreds of billions of assets under management, and include the likes of Vanguard, Fidelity, PIMCO, BlackRock,Franklin Templeton etc. These are known as fund promotors. They employ professional investment managers to run their funds. The funds can invest in a variety of asset classes or asset types, for example Equities, Bonds, Currencies, Property, Commodities, Futures and other derivatives. Some funds will invest in one specific class of assets, some in a mix of assets. Some will invest in particular geographical locations or globally. Others will do the same, but will link to a specific Index — these are known as index tracking funds. THe best known is probably the S&P500 index and a number of fund promotors have funds that track this index. Generally the name of the fund will give a good indication of the assets that are invested in them, but a detailed description is provided in the fund prospectus.

So, What is a Fund Accountants job

Fund Accountant

The main job of the fund accountant is to value the fund. There are a few key pieces to putting the valuation together. The main ones are as follows:

1. Pricing the underlying securities

2. Accounting for any income/dividends

3. Accounting for fund expenses

4. Reflecting any trades done by the fund manager/ investment manager

5. Accounting for any Corporate Actions

7. Completing Cash and Asset Reconciliations

I will go through each one of these in more detail below.

The Fund Accountant also has other duties. These include assisting with the annual audits of the funds, dealing with Trustee queries, dealing with client queries, providing management information and other ad hoc tasks. With increasing regulation in the industry, there is an increase in the amount of information that is required of the fund accountants. Many fund promotors outsource the fund accounting tasks to a third party. These 3rd parties can also be very large corporations/banks,some of which specialize in funds only, while for others it is just another business within their banking portfolio. The fund administrators complete the valuations and annual reporting, and some complete the Trustee role also (although the Trustee should be independent and therefore should be set-up as a separate company).

Interesting Investment related links and resources

Interesting site on Wall Street. Includes history of Wall Street. Also has good trading resources and information.

Pricing The Underlying Assets

Pricing the underlying assets within the fund is key to an accurate valuation. In general about 90% of the valuation is within pricing, although this can vary depending on a number of factors.

The fund administrator is tasked with valuing the fund, and therefore needs to be able to source the pricing in a timely and accurate fashion. The fund prospectus may or may not set out the source to be used for pricing the fund. However the fund promotor should indicate which sources should be used in some way to the fund administrator.

There are several pricing sources available. The main ones would be Bloomberg, Reuters and FT Interactive Data. In some cases however the pricing may need to be sourced elsewhere. Broker prices are sometimes used. For some derivative instruments a pricing model needs to be employed. In rare occasions the client (promotor) will provide a price — although this should be avoided due to conflict of interest.

Prices are also published in some daily papers and on the Financial Times. However due to the volume of assets on most funds, it would be impractical to manually source prices from the paper, so most administrators have automated pricing feeds from the main pricing vendors.