Checklist: Planning a Move into Separately Managed Accounts (SMAs)

Moving into separately managed accounts (SMAs) is a popular conversation among corporate treasury teams right now.

There are several factors fueling these conversations. Corporate treasury teams we see exploring this option are usually:

• Increasing tolerance for risk due to the macro-economic landscape and rising interest rates
• Holding investible cash in excess of operational or liquidity requirements
• Scaling the investment program following a public listing, divestiture, or similar windfall
• Seeking external resources with credit and asset-class expertise

There are clear benefits to investing in SMAs, including an opportunity to diversify your portfolio, gain transparency into your investments, and have greater control over your strategy. Still, some corporate investors choose not to allocate capital into separately managed investment accounts because of perceived challenges. They might be concerned about the operational changes needed for SMAs or potential administrative and accounting challenges.

To help corporate investors better understand what’s needed to move into SMAs, we compiled the following checklist. Your investment accounting and reporting solution should help streamline the transition, not stand in the way.

Accounting Capabilities

You’ll want to start by evaluating your current accounting system to ensure it can:

• Correctly amortize/accrete your securities in accordance with latest accounting standards
• Handle multiple bases (IFRS, UK GAAP, US GAAP, etc.) and multiple currencies
• Correctly reflect investment activity on the trade date and not the settlement date (i.e., accrual vs. cash method)
• Handle other accounting intricacies, such as impairing securities, FAS 91 adjustments, realized gain/loss tracking, and more
• Provide fair value of securities (and the resulting unrealized gains and losses) in a way that’s transparent for auditors and uses industry-standard pricing sources
• Appropriately classify securities on the balance sheet
• Provide a complete suite of financial statement disclosures (e.g., fair value, impairment, shock analysis, roll-forwards, etc.) with the click of a button

Timely, Validated, Accessible Investment Data

To handle the needs of investing in SMAs, your solution should be scalable, flexible, and accessible. The following statements should be true of your solution:

• Investment information is updated and available daily, so you are not forced to wait until month-end to know what you own. This means you can close your books as soon as the first business day after month-end.
• Investment information can be accessed from anywhere
• You have the freedom to make changes to your investment structure without affecting your reporting processes
• You have access to flexible, easy-to-use report-writing capabilities
• Portfolio complexity can double overnight, and you won’t have scalability issues

Consolidation, Reconciliation, and Consistency of Information

With SMAs, it’s important that your investment information is validated daily, and that you have a single consolidated view of your investments. The following statements should be true of your solution:

• You have a consolidated view of your investments with a single login
• Spreadsheets aren’t needed to track your investments or perform reporting
• Reconciliations to third-party data providers are performed daily to validate the accuracy of your holdings and the supporting security master characteristics
• Processes are independent and void of conflicts of interest
• All calculations, accounting assumptions, and security prices are consistent across the portfolio, regardless of where the assets are held or who manages them
• Auditors recognize that the consistency in calculations, the data validation checks, and the independence is a strong benefit to your overall control framework

Do you have what you need?

If you are evaluating a move into SMAs, you need a solution that gives you the support and tools you need. Clearwater is here to help. We work with thousands of institutional investors to provide a complete investment accounting and reporting solution that is scalable, flexible, and built to give teams the confidence to move forward with separate accounts.

Schedule a meeting with one of our solution experts today to learn more and see the Clearwater solution live.