State Street looks to bolster Charles River, Alpha platforms with FundGuard integration

Investment professionals need trusted data for mission-critical activities—this may seem straightforward, but getting that data involves multiple steps and systems.

The data sits with the firm’s investment book or record (Ibor) and must seamlessly feed into other applications, such as portfolio management and performance management, regulatory reporting, client-facing portals, and third-party applications like investment research. 

This is one reason State Street partnered with FundGuard, provider of a software-as-a-service (SaaS) investment management and administration platform.

“When you look behind the scenes, investment professionals need trusted data for mission-critical activities, like knowing in the morning the cash availability,” says Bruce Feibel, platform manager for State Street’s front-to-back Alpha platform. “It’s an interesting business because even if you have no intent to trade, you have to trade. Why? Because investors in portfolios move money in and out, make contributions, withdraw, and transfer. And those aren’t necessarily predictable.”

These are transactions that portfolio managers will find out about, and even if they intend to keep the portfolio as it is and follow their strategy, trades come in and out from the fund that will impact the portfolio’s valuation. And there are activities like corporate actions that need to be better addressed.

“At its most basic, an accounting system takes a trade and updates a position,” Feibel says. “For example, I bought 100 shares, and I bought another 100. So now I’ve got 200. Then, there’s a two-for-one stock split, so now I have 400 shares. It’s the accounting system that’s responsible and mission-critical for any investment platform.”

FundGuard’s cloud-native investment accounting, fund accounting, and contingency net asset value (Nav) solution is currently being integrated to allow straight-through processing from portfolio management and trading in the Charles River Investment Management Solution (IMS) through to custody and administration. State Street will implement FundGuard’s capabilities for Alpha clients that offer mutual funds and exchange-traded funds, alternatives, insurance, and pensions. Similar to its partnership with FactSet, State Street will integrate FundGuard into its Alpha platform through its Alpha Data Platform (ADP).

Parallel to investment accounting—which feeds the Ibor—is fund accounting, the process that essentially produces a Nav. This is also important, Feibel says, because it’s the Nav that everyday investors rely on to trade in and out of funds.

“We’ve got the portfolio writing information to portfolio managers, and that same portfolio is being valued for you and me. Wouldn’t it be good if you had one system that can do both?” he says.

FundGuard provides multi-book accounting, so if State Street is handling the fund accounting process, and the client has State Street Alpha, it would provide a “more operationally-efficient [process] and hopefully better data” because investment accounting and fund accounting are in one system.

A former global operations head at a Switzerland-based asset manager says they believe FundGuard will provide contingency Nav oversight, meaning it acts as a secondary producer of Navs.

“Many asset managers are transitioning from legacy platforms to ones that are more technologically advanced. The problem they could encounter is that these Nav productions will be running in parallel, and we all know how hard it is to fully switch to a new platform,” they say.

Future-proofing

To be clear, State Street’s current systems are “absolutely fine,” Feibel says. “One reason State Street has ‘permission’ to play in this space is that we do this 24/7 around the planet. It is a considerable undertaking to be able to do this at the scale we do and with the accuracy and timeliness requirements. So our systems today are absolutely just fine—they work every day in this space.”

Feibel adds that State Street is fully committed to maintaining and supporting these systems. “And just like we’ve done in generations of technology in the past, we are transitioning clients to newer technology that we use on their behalf. We test these new systems, like FundGuard, in a very empirical and careful way. And once that functionality is tested and proven out, we can decide when and how to transition clients,” he says.

There are a couple of checkpoints to pass before making that transition, Feibel adds. The bank will phase the transition by asset class and instrument type, starting with equities and then fixed income, advanced fixed income, and other alternative asset classes.

“There will be a parallel period to make sure those data integrations and operational readiness are in place. We are actively working to get FundGuard up and running and ready at State Street. It is probably in the first quarter of next year—once we get through a few checkpoints—that we will be publishing schedules and providing options for clients,” he says.

Virginie O’Shea, founder and CEO of Firebrand Research, says FundGuard is a piece of the fintech puzzle that State Street didn’t have. Competitor BNY Mellon, for example, has long offered fund accounting via the Eagle suite, though O’Shea notes that it has also been rebranded and changed over the last few years.

State Street’s selection of what O’Shea calls “one of the newer players on the block” that is cloud-native makes “perfect sense,” given that asset managers are now more open to SaaS-delivered versions of software rather than on-premises deployments that must be maintained by internal IT.

“Very few asset managers want to rely solely on one provider for all of their technology, so partnering rather than acquiring makes sense also. There’s a lot of regulatory oversight at the moment around concentration risk and operational resilience, so plug-and-play is the way forward,” O’Shea says.

Another benefit for asset managers is they can potentially avoid monopolistic pricing by working with more than one vendor or provider.

“The more functionality you can provide or connect to, the more appealing your offering, so it makes sense for both parties,” she says.

FundGuard was founded in 2018 to serve the asset servicing space using cloud and AI technologies. The vendor is headed by CEO and co-founder Lior Yogev. Other co-founders include Yaniv Zecharya, who also serves as CTO, and Uri Katz, vice president for research and development. In 2021, FundGuard added John Lehner, a former State Street and BNY Mellon executive, who now serves as FundGuard’s president.

In April, FundGuard closed a $40 million Series B funding round, which includes State Street and Citi as investors, joining initial investors Blumberg Capital, LionBird Ventures, Team8 Capital and others.