There is a renewed interest within both established and recent outsourcing initiatives in addressing the challenges around NAV Oversight and Backup NAV

1. NAV Oversight&
Backup NAV Challenges?
Youarenot alone…
M I L E S T O N E G R O U P . C O M

2. Outsourcing
challenges with NAVs
There is a renewed interest within both established and recent
outsourcing initiatives in addressing the challenges around
NAV Oversight and Backup NAV:
• Complex operational challenges in supporting these
outsourcing relationships
• Overseeing these relationships in a changing regulatory and
operational landscape
Soundfamiliar? Youarenotalone

3. Changing
outsourcing
motivations

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However these motivations have
now shifted a degree or twoShifting
outsourcing
motivations–
new drivers
A corporate sense of core and non-core activities
Desire to avoid major refurbishment projects of
internal operating models and related technology

5. Profound shift
in outsourcing

6. Heightened
challenges

7. How are some
who outsource
feeling?
A LOSS OF
CONTROL
over the quality of
daily NAV production
and related data
FEAR OF PERIODIC
INTERRUPTIONS
to the timely and
accurate delivery of
NAVs
RESIDUAL EFFECTS OF
2015 ACCOUNTING
SYSTEM FAILURE
at a major service provider
that prevented them from
getting client NAVs out the
door over multiple days
DESIRE TO
INDUSTRIALIZE
and support a robust,
professional oversight
function

8. What are the
regulators
saying?
The regulators have ‘raised the bar’ on acceptable
market practice in relation to oversight. They have set
the expectation that fund boards should have a
business continuity plan in place to insure against a
future service provider outage or failure.
In the US and Canada the regulators are clear -
outsourcing fund accounting does not absolve the
fund managers of their fiduciary duty to distribute
timely and accurate NAVs.

9. What are the
regulatorsdoing?
In 2016, one fund manager had a NAV error go
undetected for months before being identified during
a routine audit, resulting in millions of dollars in
restitution to the fund and several more millions of
dollars in fines by the regulator.
APPLYING PENALTIES WHERE BREACHES OCCUR

10. Is it possiblefor
marketplayersto
comply with the
regulators?
Continued reliance on home grown
solutions, often leveraging existing
middle office systems that were not
intended for this purpose.
Many still using cumbersome, fragile
spreadsheet-based or semi-manual
solutions.
Some fund administrators provide add-
on services as protection against a
failure of their primary accounting
system. However, their clients struggle
to understand the logic as resilience
was a primary factor in their original
business case.

11. • Oversight resources are stretched thin –
competition for available operations
budget
• Not enough time in the short window
before NAVs are distributed to perform a
complete set of checks across all funds
and classes to ensure their accuracy
• Oversight process often relies heavily on
spreadsheets and manual processes that
are time consuming and prone to user
error or discontinuity, which translates
into a high likelihood that some NAV
errors are going to go undetectedWhat’sstopping you?

12. “I realizethat my current oversight
processis not great, but it appears
to be working…for now at least.”
A common view is - little has gone wrong for a period of time,
therefore risk of an oversight failure is being effectively managed.
It is therefore not a surprise that initiatives to fortify oversight and
contingent NAV capabilities often follow an actual loss event, near
miss or regulatory directive.

13. Independence is key
78% of market participants feel that the oversight
process should be independent of their service
provider*

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One option is to employ shadow accounting
or to recreate accounting books
Insuring against
your service
provider’soutage
Generally discounted as too costly and wipes out the cost
savings, the original driver of the outsourcing
Not a broad enough solution. Most fund managers now
believe that an insurance policy against future service
outages should be independent of their service provider’s
infrastructure and provide protection against a broader
range of failure scenarios than just the fund accounting
platform

15. What to look for
in an effective
contingent NAV
solution
ACCURACY across fund types and share classes
RELIABILITY over a multi-day outage
INDEPENDENCE of service provider availability
LOW COST of ownership
15

16. Does Milestone
Group have a
role to play?

17. BACKUP NAV CAPABILITY
DEPLOYED INDEPENDENTLY
INTEGRATED & AUTOMATED
ADMINISTRATORS
How we help

18. Connect with us
milestonegroup.com