Photo of Francisco Meyo and Jason Papadopoulos, Masterworks.

Masterworks solution manages investors’ shares in a Picasso masterpiece

The challenge

Masterworks administers its payment operations in-house with an objective to facilitate multiple payment options for investors. This aim required its payment operations to support timely reconciliation of investor payments, irrespective of payment method, and to develop an integrated workflow to identify and resolve payment exceptions as they arise.

“Our challenge was to construct a payment, treasury operations workflow that could reconcile all investor subscriptions completed as recorded in Masterworks’ investor ledger databases with the applicable investor payments as they were cleared through our banking partners,” explains Francisco Meyo, Controller, Investment Vehicles.

The solution

Masterworks developed an in-house investor payment reconciliation system, named T-Rec, to automatically reconcile investor payments with investor subscriptions across various payment types. T-Rec processes data from investor and bank ledgers stored in Masterworks’ own databases, powered by application programming interface (API) connectivity to bank accounts held with Goldman Sachs.

The objective of T-Rec is to associate an investor subscription, identified through a unique investor order number, with a corresponding bank payment(s) and, in the case of wire transfers, enable STP by acting as a webhook. T-Rec acts as both a data processor and as a visualisation tool, where operators can not only oversee the process, but also perform operations when automation reaches its limits.

• Payment reconciliation – as a first step, Masterworks developed Python scripts to perform scheduled API calls to compile and store bank activity on a periodic basis in a relational database. The use of the bank’s API allows Masterworks to access critical metadata typically not otherwise available through a traditional bank portal (eg, wire codes, ACH IDs or originator names). Their scripts then run a series of matching algorithms to investor subscription orders with corresponding bank deposits, detect exceptions (eg, cash breaks) and suggest actions to resolve exceptions.
• Bulk transfers – resolving payment exceptions may require transfer(s) among internal accounts. For example, an investor may send a single batch wire for investments in multiple offerings to the account of a single entity making it necessary to redirect funds to applicable entities. Upon identifying such an exception, Masterworks’ algorithms then recommend the corrective internal transfers required to resolve the exception which, after review, are queued as payment orders to be processed through the API. This not only allows Masterworks to perform bulk transfers in the hundreds, but also to push metadata that will allow the matching algorithms to perform an automatic reconciliation of the transactions.

Best practice and innovation

The solution leverages leading-edge bank API capabilities, combined with algorithms developed in Python to manage 40,000+ accounting records across hundreds of individual bank accounts. A natural use case of Masterworks’ bank activity database is the accounting of its bank transactions. Through use of no-code data wrangling software (Alteryx), Masterworks set up a workflow that extracts the bank activity from the API-driven relational database and combines it with the company’s chart of accounts by applying rules to code each transaction to its corresponding book account. The data is cleaned and later converted into a tidied format that allows Masterworks to automatically push the entries into its accounting software.

Key benefits

• Process efficiencies.
• Increased automation.
• Improved visibility.
• Errors reduced.
• Manual intervention reduced.
• Increased system connectivity.

“Given the unique nature of our business model in managing 100s of ‘micro-securitised’ investment vehicles, no outsourced payment operations, administration options would be cost-effective or could seamlessly integrate into our investor experience. As a result, we built our payment operations entirely in-house. We now offer our investors the flexibility to use multiple payment methods while maximising straight through processing and streamlined exception handling across various payment types,” says Meyo.