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What does a Fund Accountant do?

Updated on September 6, 2016

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

6. Reflecting any Capital deals i.e. Subscriptions and Redemptions on the fund.

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).

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.

Accounting for Income and Dividends

For the purpose of this section, Income refers to Fixed Income or Bond income, and Dividends refer to income from Equities.

Part of the valuation of the fund will be to account for any income earned by the underlying assets within the fund.

For Fixed Income or Bond Funds this income is generally earned on an accumulating basis. So for example a bond with a nominal value of 1,000,000 with a coupon (or interest) rate of 10% per annum over 5 years will earn 100,000 per annum, but the fund should value the amount earned up to the valuation point. So each day the fund will earn an extra 273.97 (100,000/365). This is a very simple examples, and most bonds will have specific methodologies for calculating the earned income. This information is available on the pricing vendors such as Bloomberg/Reuters.

Dividend income on Equities is valued in a different way to bond income. Companies that pay dividends will announce an Ex-Date and a Pay Date. The Ex-Date is key to when the coupon value is accounted for on the fund. If a fund announces a dividend of 10cent per share with an ex-date of 5th July, on the valuation of the 5th July the dividend should be reflected on the fund as an accrual. The dividend then pays on the pay-date. On pay-date the accrual drops off the valuation and the dividend is reflected as cash. Note there may be a withholding tax associated with dividend income.

So for Equities the valuation may reflect no income for large parts of the year. But it will reflect income from the ex-date to the pay date. On bonds, the income is reflected throughout the year. Note that some bonds pay no coupon, and therefore no income is accrued.

Accounting for Fund Expenses

Most funds (over 99%) will have expenses associated with them, and these need to be accounted for.

These expenses can relate to set-up costs, audit fees, administration fees, director fees, performance fees etc.

They can be fixed or variable. Fees should be reflected accurately on the funds, although they generally account for a small proportion of the fund.

Reflecting Trades

The investment manager decides what assets to buy or sell on the fund. However he is restricted to certain assets depending on the investment objective of the fund, the fund prospectus and other regulations.

It is the fund administrators job to accurately reflect these trades within the correct timeframe. The fund manager must provide the relevant trading activity to the administrator to enable this to happen.

If a trade is not reflected in a timely manner, and the price of the asset in question moves significantly, then this will impact the valuation of the fund, and could cause a material error.

Accounting for Corporate Actions

You may ask what are Corporate Actions. Well, a Corporate Action is any action that a company may make that have an effect on the issued shares of the company. These can be done by offering the shareholders the opportunity to further invest in the growth of the company; by distributing shares to the shareholder; by changing the internal structure of the company and/or by identifying similar companies and merging with them. Some of the more common corporate actions are as follows:


Bonus Issues

Rights Isssues

Stock Splits


These Corporate Actions will inevitably have an impact on the quoted share price, therefore it is essential that they are reflected correctly on the funds. For example on a 2 for 1 stock split, the price of the security will drop by 50% all other things being equal. However the shareholder (in this case the fund), gets 2 shares for every 1 share that he held before, and therefore the price drop is offset by the extra shares.

Capital Deals

Also known as Cap Stock or Transfer Agency Activity. This is where investors buy in to (subscribe) or sell out of (redeem) funds.

The Transfer Agent acts as an agent between the investor and the fund promotor.

All subscriptions and redemptions need to be reflected accurately and timely on the fund. Investors subscribe at the NAV (Net Asset Valuation) of the fund. There may be a spread involved (bid / offer prices may be quoted), in which case a subscriber gets a higher NAV than a redeemer. There may be a swing involved. This is where if subscriptions are larger than redemptions, then a higher price is used than if redemptions were higher. There may be an "anti-dilution levy" applied either. These are some of the more common costs of investing in funds, and the main reason is to cover trading costs involved whenever there are deals on the fund. In other words, if 1million extra is subscribed into the fund, the investment manager need to invest that 1million in assets on the fund, and he will incur commission costs in doing this. Therefore new investors are charged so that existing investors are not impacted.

Cash & Asset Reconciliations

One key participant in funds that we have not mentioned yet is the Custodian. The Custodian holds all assets including cash of the fund. They are like the bank for the fund. In the same way as you deposit cash in your bank, which you can withdraw at any time, the Custodian acts in the same way for the fund.

The fund accountant/administrator should reconcile his books bak to the Custody records on a regular basis, often on a daily basis. Best practice is that this reconciliation is completed as regularly as the fund is valued. So for daily valued funds, the reconciliation should be completed daily. For weekly funds, the reconciliation should be completed at least weekly and so on.

Any breaks or differences between the 2 records should be investigated and resolved as soon as possible. There are occasions when there will be legitimate timing or other differences, but these should be explained.

These reconciliations are a key risk control that should be taken seriously.

Career Path

What are future prospects like for a fund accountant?

Many people fall into the job of a fund accountant without any particular knowledge of what is involved. Many love the job and can make a good professional career from it. As people rise through the ranks they can become team leaders, assistant managers, managers senior managers and even director level.

However some also find other related areas of interest as they work in the industry. Working as a fund accountant you get the opportunity to see other areas of work that may be of interest. These include (but not limited to) the following :

1. Trustee - Fund accountants get quite familiar with the work of the Trustee. In most jurisdictions it is a requirement that each fund appoints a Trustee - Their role is to ensure that the funds are administered in the interests of the fund's investors. Many fund administration companies also have a Trustee company (legally separate from the fund administrator). In my experience many people move from fund accounting to a trustee job. Rarely is it the case that a Trustee moves in the opposite direction.

2. Client Services : This function deals with managing the fund administrators clients. They are a point of contact for the client to raise issues and discuss future needs. The Client service team would work hand in hand with the fund accounting department to ensure that the client is receiving the right level of service. The client service team tends to attract people with a number of years experience especially with a good fund accounting background.

3. Shareholder Services: This function deals with the investors in the funds. When an investor wants to subscribe or redeem money from a fund, they interact with the shareholder services team. In my opinion a move between the shareholder services team and the fund accounting team would be a lateral move.

4. Other Financial positions : In rare occasions people may decide that they want a more front office type position. This would be quite a big change and may require starting from a low base, but the rewards can be high. An example would be moving into portfolio management. This would probably require further study and certainly on the job training.

All in all, the experience you get from working as a fund accountant is very valuable and the skills you can learn are very transferable to other jobs. I made a career from it up until recently when I decided to pursue further study - I'm a CFA candidate hoping to get into hedge funds. I also trade the financial markets part time.

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    • SmallBizChampion profile image

      SmallBizChampion 22 months ago

      In response to chema - It's not really related to Risk Management, however there are risks in the administration of funds that need to be managed. One of the key things in fund administration (fund accounting) is to calculate accurate NAVs (net asset values). So there are many controls that need to be in place by the administrator to ensure that the NAVs get calculated in a controlled and accurate manner. There is a separate role for Risk Management and it can be a very broad role, but not limited to fund accounting.

    • profile image

      Mikey 3 years ago

      Good information for someone looking to get into this line of work found it very interesting!

    • profile image

      chema 3 years ago

      Is it related to risk management?

    • profile image

      becky-luo-31 4 years ago

      Thank you, this is very useful.

    • profile image

      simply-accounting 4 years ago

      There is a very useful information in this post, thank you.


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