IMMERSION 2016Conrad IndianapolisJune 22, 2016

ALTERNATIVES: Tracking Alternatives through the Private Equity and Hedge Fund Modules

Facilitators: Matt Fultz, Client RelationsDanny McNulty, Proteus

SESSION OBJECTIVES

Goals of this session:– Inform users of methods available in ATWeb for tracking and

accounting for alternative assets– Provide guidance on the requisite setup functionality – Provide guidance on best practices in ATWeb

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A System OverviewPrivate Equity Tracking

PRIVATE EQUITY TRACKING

Private Equity Tracking Required Setup for PE Module Private Equity Module Considerations for Private Equity Performance Private Equity Reporting K-1 Adjustments Questions

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PRIVATE EQUITY TRACKING

Two Methods to Track Alternatives in ATWeb:– Independently

• Transactions through Portfolio Module• Balance Sheet Line Items

– Private Equity Module in the Security Master• Tracked at a Quantity of 1 and Unit Value equal to the current Market Value• Single or multiple portfolios can be utilized with the ability to enter multiple

Commitments• IRR and XIRR calculations are available

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Two Steps to Enable the Private Equity Module:

REQUIRED SETUP: SECURITY CLASS AND SECURITY TYPE

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❶

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Add Private Equity Security Class

Associate the new Security Class with the appropriate Security Type

PRIVATE EQUITY MODULE

Unique data requires unique tools– Tracks Commitments, Calls and Distributions for multiple Entities or

Portfolios– Use for data containment, easy review and consistent data entry– Conduit by which journal entries and basis transfers are booked– Required for Private Equity Summary Report– Private Equity Details Query

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PRIVATE EQUITY MODULE

Commitments– Why do we need it?

• Call/Distribution Linking • PE data points

– Unfunded Calculations– Commitment Periods (expiration

date)

– What can go wrong?• Timing Considerations• Under Committing vs. Over-Calling

– Integrate Investors– What Happens with the GL?

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PRIVATE EQUITY MODULE

Calls– Commitment Selection– Integrated Bank Account– Private Transaction Expenses– Funding Date vs. Call Date– Integrate Investors– What Happens with the GL?

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PRIVATE EQUITY MODULE

Distributions– Commitment Selection– Integrated Bank Account– Income Account– Amounts

• Income• Return of Capital

– Percent Recallable• Affects Unfunded Calculation• Income has no effect

– Integrate Investors Liquidations

– Portfolio Transaction

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(ROC) X (% Recallable) = Increase in Commitment

CONSIDERATIONS FOR PERFORMANCE

Market Value Updates– Connection Between Market Values and Cash Flows

• Cash flows should align with market value adjustments• Inherent UG created by cash flows without market value adjustments

– Performance• IRR: Consistent, regular timing• XIRR: Irregular timing

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PRIVATE EQUITY REPORTS & QUERIES

Private Equity Summary– Sort by security class

• Valuation Level, Liquidity, Sector, etc..

– Consolidate Button• Reporting across multiple

entities/funds

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PRIVATE EQUITY REPORTS & QUERIES

Private Equity Details Query– Track PE Module activity within a date range– Columns on Query:

• Date• Entity• Security• Activity Type• Commitment• Call Amount

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• Call Amount• Call Expense• Total Call• Income Distribution• ROC Distribution• Total Distribution

ADDITIONAL INFORMATION

Zendesk: ATWeb Enterprise Tools Security Master Private Equity

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archway.zendesk.com

K-1 ADJUSTMENTS

Two Potential Processes: Determined by Quality of Information– Process 1: Valuations

• Mark to Market as received to adjust MV and UG• When K-1 is received:

– Book a single basis transfer against designated partnership income account; reclass income received throughout year from designated partnership income account to proper Income Statement line-items

Or– Book a single Basis Transfer for each Income Statement line-item entry (no need to

re-class)

– Process 2: Valuations and Distributions• Mark to Market as received to adjust MV and UG• Book distributions or journal entries to record partnership income• When K-1 is received:

– Re-class income from partnership income to proper Income Statement line-items.

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K-1 ADJUSTMENTS

Key Factors to Keep in Mind– Ownership changes

• Basis adjustments and income re-class will allocate at current ownership percentages, not historical ownership percentages

• Timing of contributions throughout year affect allocations of K-1 adjustments• If nested, all partners/owners must revert back to the same period to receive

new allocations– Solution 1: Revert and reclose– Solution 2: Utilize explicit allocations

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Tracking Hedge Fund Positions from within the Security MasterHEDGE FUND MODULE

HEDGE FUND MODULE

Required Setup Subscriptions, Redemptions and Transfers Reporting Special Considerations More Information on Zendesk Questions

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REQUIRED SETUP: SECURITY CLASS AND SECURITY TYPE

Hedge Fund System Security Class– Select Hedge Fund in System Class drop-down list

Associate the Hedge Fund Security Class to your Security Type

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REQUIRED SETUP: SECURITY CLASS/TYPE

Allows access to the Hedge Fund tab in the Security Master– If Hedge Fund tab is grey or unavailable, check the setup

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HEDGE FUND SUBSCRIPTION

Initial Subscription:– Funding Date: Journal Entry for Amount

• DR Portfolio Due To/From• CR Portfolio Cash

– Subscription Date:• Buy of Security: Quantity = 1, Total Cost = 0• Basis Transfer: DT/DF Tax Lot for Amount

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Second Subscription:– Funding Date: Journal Entry for Amount

• DR Portfolio Due To/From• CR Portfolio Cash

– Subscription Date:• Basis Transfer: DT/DF Tax Lot for Amount

HEDGE FUND SUBSCRIPTION

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Store Liquidity Restrictions (informational):– Lock-up Expiration, Penalty and Structure– Liquidity Frequency, incl. Semi-annual/Annual– Liquidity Notice requirement– Gate Provision

HEDGE FUND SUBSCRIPTION

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Store Fee Structure Detail (informational):– Management Fee– Performance Fee– Hurdle Rate– Highwater Mark

HEDGE FUND SUBSCRIPTION: SECURITY CLASS OPTIONS

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Leverage the Hedge Fund Class Options’ Value fields to automatically populate the Subscription tab values. Examples:

– Fee - Hurdle Rate – Investment - Gate Provision

HEDGE FUND REDEMPTION

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Allows for Full or Partial Redemptions:– Redeem from ‘Main’ or ‘Side Pocket’ accounts– Allows gaps between Redemption and Funding dates– Allocate to a single Subscription, multiple Subscriptions or spread across all– Full redemptions completely redeem and close the position

HEDGE FUND REDEMPTION

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Allows for Full or Partial Redemptions:– Define Holdback and Reserve provisions, along with dates received for both

dollar amounts– Retain Holdback and Reserve dollars in user-defined receivable accounts

until received: automated entries clear the receivable against Cash

HEDGE FUND TRANSFER

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Allows for transfers between Main Account, Side Pocket Account and Reserve Account

– No entries booked with a Hedge Fund Transfer

REPORTING

Open Positions reporting suite and queries Hedge Fund Liquidity report

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REPORTING: HEDGE FUND LIQUIDITY

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SPECIAL CONSIDERATIONS

Feedback is that Hedge Funds are tracked with a time weighted return

Migration from Private Equity:– In many cases, Archway can assist in migrating legacy hedge fund

positions out of the Private Equity tab– Contact Archway Support for more information

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ADDITIONAL INFORMATION

Zendesk: ATWeb Enterprise Tools Security Master Hedge Funds

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archway.zendesk.com

QUESTIONS?

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