Samuel Petrecky

SVP, Fund Accounting

When it comes to financial reporting, you want to know what to expect from working with your fund accounting provider. In setting up the fund accounting workflow for your fund, you are looking forward to the day-to-day collection and dissemination of information and who is going to need it. It is important to remember that there will be more than one audience for the financial reporting that comes from your fund accounting team and those different audiences will have different needs and expectations.

There are five standard deliverables your teams will expect to receive from fund accounting on a periodic basis. You can choose when and how often you want to receive this reporting when you set up the fund with your fund accounting provider.

The Standard Fund Accounting Reporting Package

  1. Balance sheet – This is fund accounting’s snapshot of the assets, liabilities and members’ equity for the fund.
  2. Income statement – This is a statement of operations, the profits and losses for the period. For audit purposes, fund accounting will prepare an income statement annually. For any other purposes it can be as often as desired. You will decide on the frequency during set up with your fund accounting partner. Quarterly is typical but many funds prefer a more frequent income statement.
  3. Partners capital statement. – This is a combination of a balance sheet and income statement. In it, fund accounting shows capital activity, contributions, profit and loss activity and what percentage of fund assets belong to the limited partners as opposed to the general partner.
  4. Statement of cash flows – This shows all the uses of cash for the period.
  5. Schedule of investments –This shows all the portfolio assets.

The Multiple Audiences for Fund Accounting Deliverables

There is more than one audience for the financial reporting produced by fund accounting. The particular data set and formatting of each report can and should be customized for each audience. Any attributes that may be relevant to specific users of this document package should be identified during fund accounting set up so that the appropriate data will be captured and reported by fund accounting at the desired interval. Consider what specific data fund accounting should include and how it should be presented in order to streamline the efforts of each audience.

  • Management – Many managers receive financial reporting quarterly but you can have fund accounting produce financial reports at any frequency you prefer. Reporting can include whatever specifics you want to see.
  • Auditors – Annual reporting is typical for auditors. Fund accounting should produce audit-quality work papers that are clear, easy to review and cover everything that would be part of a Provided by Client (PBC) list request.  This may include calculations and transparency into how the fund accounting system handled the calculations
  • Deal Teams – The frequency deal teams prefer will be in line not only with management reporting from fund accounting but any other deliverables the deal teams may receive relating to the Know Your Client (KYC) process with their partners or tracking of leverage and credit facilities. The fund accounting document package may need to be reviewed each time they draw on a credit line. Deal teams will typically be interested in fund accounting reports that cover asset-level cash flows and attribution of assets so they can monitor portfolio exposure by geography, deal partners, etc.
  • Investors – Quarterly or monthly investor statements from fund accounting are most common. Data for investor statements depends entirely on what management would like fund accounting to include. Some possibilities are Internal Rates of Return (IRR) by period, a granular breakout of expenses,or industry metrics such as Distributions to Paid-In Capital (DPI), Total Value to Paid-In Capital (TVPI) or Gross Multiple of Invested Capital (MOIC). Such fund accounting data enables investors to assess the performance of their investment. Consider how much information is too much for an investor statement and will only cause confusion and unnecessary questions from investors.

Details for Fund Accounting to Consider

What information to include, how to present it and for whom is worth considering when you set up ongoing reporting with fund accounting. If, for example, the portfolio includes multiple loans from various countries it will be useful to have fund accounting identify the country for each loan in the schedule of assets or in the footnotes. This may be significant for management and deal teams while less so for auditors and investors. Each of the audiences involved in your fund will benefit from a presentation and a frequency designed by fund accounting to meet their needs.

Outside Audiences for Fund Accounting Deliverables

Additional reporting to third parties is also something to consider having fund accounting customize. There are a number of outside entities that may benefit from and appreciate reporting customized by fund accounting for their needs. These may include leverage providers, custodians and tax preparers doing quarterly reviews to ensure compliance with REITS, RICs, or Opportunity Zone Funds.  Customizing reporting for each audience shows professionalism and care and is easily accomplished by a strong fund accounting partner with thoughtful planning at fund setup.