Balance Swap Overview & Calculations

Written by Nick Miles

Last published at: June 1st, 2021

Overview

The Balance Swap feature provides system suggested movements of money based on a where a fund's money is currently held in relation to where a fund's investment strategy says it should be. Balance Swap involves four main components: Funds, Investment strategies, Accounts, and the Manage Cash feature.

  • Funds involved with balance swap include the Z_Cash_Balance system fund, and any funds that you want to participate in balance swap.
    • CommunitySuite uses the Z_Cash_Balance fund as a holding fund in the balance swap process.
  • Investment Strategies define where (which accounts) a fund's money should live in in the real-world.
  • Accounts involved with balance swap include a fund's default checking account, and any bank and investment accounts that are assigned to an investment strategy.
  • Manage Cash (also known as Cash Management) is an account and fund level setting that must be enabled for each fund and account that you want to participate in balance swap.

How It Works

Setup

  1. Enable the Manage Cash flag for any bank and investment asset accounts that you want to include in balance swap. 
  2. Create Investment Strategies. 
  3. Assign an Investment Strategy and enable the Manage Cash flag for any fund(s) that you want to participate in Balance Swap.

For step-by-step instruction, see "Edit an Account", "Create a Fund Investment Strategy", and "Edit a Fund" in the WalkMe Menu.

Review and Process Balance Swap Suggestions

At the end of each month, navigate to Balance Swaps and review and process the suggested balance swaps. This is often referred to as a paper movement of money.

For step-by-step instruction, please refer to "Run Balance Swap" in the WalkMe Menu.

Transfer Money in the Real World

Once you're ready to initiate the real-world transfer of money with your bank, you will need to simultaneously transfer the money in CommunitySuite. This must be done at the time in which you make the actual real-world transfer with your bank.

For step-by-step instruction, please refer to "Transfer Money from Balance Swaps" in the WalkMe Menu.


Example Calculations

Example balance swap calculations were created using three funds, three investment strategies, and three accounts.

Funds Investment Strategy Investment Strategy Account
Endowed Fund #1 Short Term Investments Short Term Investment Pool
Endowed Fund #2 Long Term Investments Long Term Investment Pool
Endowed Fund #3 Checking Bank of MT - Checking


Each investment strategy was configured to allocate 100% of a fund's assets to the account defined in the investment strategy (see example below).

Prior to balance swap, each fund had the same fund balance (+/- $.02) and each fund's assets were distributed in the same manner between the "Bank of MT - Checking" account and "Short Term Investment Pool" account. Additionally, each fund was assigned the "Bank of MT - Checking" account as the fund's default checking account, and an investment strategy (example below from Endowed Fund #2).
 

Suggested Swaps

To provide context for how balance swaps are calculated, let's first take a look at balance swap suggestions from the example data. For the purpose of this example, we'll focus specifically on the suggested swaps related to Endowed Fund #2 (line items 2 and 3).

In the second and third line items, Balance Swap is suggesting that we move the following amounts of money::

  • $5,000 from the "Bank of MT - Checking" to the "Long Term Investment Pool" account.
  • $32,358.35 from the "Short Term Investment Pool" to the "Long Term Investment Pool".

Within the cash management settings of Endowed Fund #2, the default checking account for the fund is set to the "Bank of MT - Checking" account, and the fund was assigned the "Long Term Investments" strategy; which is configured to allocate 100% of a fund's assets to the "Long Term Investment Pool" account.


The fund has $5000 in the "Bank of MT - Checking" account, and $32,358.35 in the "Short Term Investment Pool" account; so the system recommends that those amounts should be moved (i.e. swapped) to the "Long Term Investment Pool" account.

For the purpose of this example, we accepted the suggested balance swaps (i.e. clicked Swap Checked Balances). At this point, the swapped balances have not actually moved money in the real world, nor do they affect the financial statement- money was only moved within CommunitySuite at a fund level.

For example, if you look at the journal entry below you can see that CommunitySuite suggested that we move $5000 from "Bank of the West - Checking" into "Long Term Investment Pool". However, the exact opposite entry was also booked into the Z_Cash_Balancing fund (i.e. the net impact of the transaction is zero). This ensures that the transaction has no impact on the overall balance sheet until you actually transfer the money at your and record the transfer in CommunitySuite (see Transfer Money below).

Transfer Money

The following processes should only be completed at the time in which you actually transfer the money at your bank- not before or after.

Once the suggested balances have been swapped, the Cash Balancing Fund Assets window (within the Balance Swap landing page) will update to reflect the dollar amounts held by the Z_Cash_Balancing fund for each of the asset accounts listed. The objective here is to transfer money from asset accounts with a positive balance to asset accounts with a negative balance until the total of all Cash Balancing Fund Assets is $0.

In our example, we transferred $22,358.35 from the "Short Term Investment Pool" account to the "Bank of MT - Checking" account, and $37,358.35 from the "Short Term Investment Pool" account to the "Long Term Investment Pool" (example below).

The resulting transfers clear out the Cash Balancing Fund Assets and the balance swap process is complete.





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