The SCF processing parameters are defined using a dialog box that you can access from the Performance Returns report profile. See the following figure.
The window shown in the previous figure enables access to the significant cash flow processing function and opens the Significant Cash Flow Processing dialog box. See the following figure.
Options on the Significant Cash Flow Processing dialog box are described in the following table.
Option | Description |
|---|---|
Weighting Method | Selects the weighting assumption that determines when cash flows are needed and ensure that all fields in the Field Rule are consistent. |
Create sub-period based on | Used to determine the sub-periods based on the presence of positions for a fund. Options include:
|
Grouping Level | Displays the grouping rule for each Report Rule selected in the profile and allows you to define the field to aggregate the cash flows and market values in the threshold check. |
Cash Adjustment Field | Selects the Cash Adjustment field that is evaluated against the threshold. |
Market Value Field | Selects the Holding field that is used as the threshold. |
Percent Threshold | Defines the percentage of the Market Value threshold field. |
Use Static thresholds | Disables the dynamic threshold calculation and uses a static threshold based on the report beginning market value. A static threshold uses one threshold level for all sub-periods using the monthly beginning market value. Dynamic thresholds are redefined at the end of every sub-period. |
Use existing subperiod data | Disables the sub-period calculation and commit process, allowing the monthly return to be committed separately. |
Use Business Calendar | This option specifies whether to use the business calendar for any date calculations in the SCF Preprocessor. Options include:
|
Run Preprocessor Only | This check box disables the execution of underlying sub-period and monthly reports allowing you to create a preliminary run of the SCF summary log without calculating the sub-period returns. |
Disable Summary Logs | The SCF summary log can create large monthly files if the process is run for a large number of entities. To help avoid these large files, selecting this check box disables the creation of the SCF summary log, allowing the report to run without creating the SCF Summary log. Details of the SCF process are still available in the SCF Detail Log stored in the PACE engine log folder. |
You can e-mail a comma-formatted text file containing the SCF summary log when:
- Report with email and Preprocessor Only enabled completes or fails.
- Report that has email enabled fails.
To e-mail the log, enable the e-mail setting in the report profile. See the following figure.
Report Options Email Setting
The file that is mailed can be opened in Microsoft Excel. An example is shown in the following figure.
Emailed Microsoft Excel File
Define Performance Returns for Each Sub-period
The preprocessing stage is the first stage for a Performance Returns report with Significant Cash Flow Processing enabled. The goal of this stage is to ensure that all the required valuations are loaded into PACE. It examines the cash flows, determines each sub-period begin and end date, recalculates the threshold level, and notes the missing valuations. The Performance Returns report can be run a number of times until all required valuations are available.
The logic used by the SCF Preprocessing stage is as follows:
- Start preprocessing only if Significant Cash Flow Processing is enabled.
- Check underlying Field Rule for commit mapping in Modified Dietz and Internal Rate of Return fields.
Write the details to the Significant Cash Flow Processing log. If the required fields do not have commit mappings set:
- End preprocessing.
- Update Commit Journal. - Check underlying Modified Dietz and Internal Rate of Return fields to ensure they use the same weighting method as the profile.
Write the details to Significant Cash Flow Processing log. If the required fields do not have the same weighting method:
- End preprocessing.
- Update Commit Journal. - Retrieve holding data for the report begin date.
- Check underlying grouping rule to ensure that grouping level selected in the profile still exists.
Write the details to Significant Cash Flow Processing log. If the required field is present in the underlying Grouping Rule, aggregate the market values and cash flows by effective date and selected grouping field. This includes fields above the selected field in the Grouping Rule.
For example, suppose the underlying Grouping Rule is ENTITY ID, INVESTMENT TYPE, and COUNTRY. If you select INVESTMENT TYPE as the Significant Cash Flow group, the cash flows and market values are summed by EFFECTIVE DATE, ENTITY ID, and INVESTMENT TYPE.
If the required field is not in underlying Grouping Rule:
- End preprocessing.
- Update Commit Journal. - Calculate threshold level by multiplying the threshold market value field by the threshold percentage level.
Write the details to Significant Cash Flow Processing log. - Compare each aggregated cash flow to the threshold level.
- If the cash flow exceeds the threshold, break the period. Note the prior period end date:
- If the Beginning of Day or Middle of Day assumption is used and the prior day is a weekend, set Sunday as period end date and use Friday as the valuation date.
- If the Beginning of Day or Middle of Day assumption is used and the prior day is a month end, do not create a sub-period.
- If the Beginning of Day or Middle of Day assumption is used and the prior day is a Sunday, and Saturday is a month-end, set Sunday as period end date and use Saturday as valuation date. Note the new period begin date and write the details to Significant Cash Flow Processing log.
- Retrieve holding data for required date. If holding data does not exist, write the details to Significant Cash Flow Processing log and advance to next cash flow without recalculating the threshold level. If holding data exists, write the details to Significant Cash Flow Processing log, recalculate threshold level unless the option Use static threshold is enabled, and advance to the next cash flow.
- If the cash flow does not exceed the threshold, write the details to Significant Cash Flow Processing log. - End the preprocessing.
If all required valuations are present, start stage 2, sub-period calculation and commit. If all required valuations are not present, end report execution, but do not fail the report, give access to the Significant Cash Flow Processing log through the report Diagnostics tab, and update the Commit Journal.
Process Composites
During SCF processing of composites, entity type of COMP or ACOM, PACE removes the missing position check for each constituent to support SCF for composites with constituents that have midmonth inception or termination. The composite must be defined as of month ends only, because the threshold and cash flows are aggregated and checked using the composite definition as of the begin date of the SCF Performance Returns report.
If a constituent has a midmonth inception or termination date, the constituent should have a funding or closing flow that corresponds to that constituent's inception or termination. Without this flow, the returns are overstated because assets are added to the composite without any corresponding flows to explain them.
This sudden boost in assets can be explained only if they have any offsetting contribution on inception and withdrawal on termination.
Also, missing sub-period positions are not flagged and must be available to the calculation. This can be accomplished by providing audited positions for all dates.
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