What are the roles & responsibilities of a fund accountant?

14 March, 2024

Fund Accounting

At Ocorian we provide fund accounting services to some of the world's leading investment firms.

Here are the roles and responsibilities we undertake on behalf of some of our clients.

Preparation of annual financial statements

The preparation of annual financial statements is a crucial aspect of the services provided by a third-party fund accountant. These statements serve as a means of communicating the fund's performance to investors, stock exchanges, tax offices, and regulators. The data for these statements is derived from the fund's general ledgers, which capture all transactions throughout the year, including investments, distributions, and other expenses/fees.

The annual accounts provide a comprehensive overview of the fund's activities and financial position at the end of the year. Additionally, the statements may include reports from the investment manager, discussing the performance of the fund during the year and providing an outlook for the future.

If the fund is listed, depending on the jurisdiction of the stock exchange, there may also be disclosures related to environmental, social, and governance (ESG) factors.

Preparation of management accounts

The preparation of management accounts is a process that involves producing regular financial statements throughout the year, such as monthly or quarterly reports. These accounts provide insights into the fund's performance during the specific period and its financial position at the end of that period. The data for management accounts is extracted from the general ledger system maintained by the fund accounting team, which captures all transactions. The accounts include reconciled bank statements and valuations of investments.

Unlike annual accounts, management accounts are not subject to audit, making them quicker to prepare. They are typically reviewed by the client and serve as a tool for internal decision-making. In contrast, annual accounts go through a lengthier process that includes an annual audit.

NAV calculations

NAV calculations involve determining the net asset value of a fund at a specific point in time. This calculation is typically completed quarterly, although some funds may require monthly valuations. The process involves capturing all financial transactions during the period and generating a list of balances for the assets and liabilities. The fair value of the investments create unrealised gains or losses, depending on the current market values/performance of the investments. The net asset value is then derived from the net position, which represents the fund's total assets minus its total liabilities. The NAV is disclosed on the Stock Exchange or reported to investors during meetings or other communications. The fair value of the investments create unrealised gains or losses, depending on the current market values/performance of the investments.

Tailored fund reporting

Tailored fund reporting involves providing customised financial reports and analysis on behalf of clients. This can include cash forecasting, projections for future periods, and meeting specific requirements set by the fund or its manager company. The manager company may have financial limits that need to be maintained, such as maintaining a certain level of cash throughout the year to ensure business continuity. These requirements and reporting obligations may vary depending on the jurisdiction in which the fund and its manager are based. Each jurisdiction may have its own specific rules and regulations. The process of tailored fund reporting involves monitoring and reporting on these requirements to ensure compliance and provide relevant financial information to clients.

Fee calculations

Fee calculations in fund accounting involve determining the fees that will be paid to the fund manager and promoter based on factors such as fund performance or net assets. These fees are agreed upon and documented upfront as part of the fund structure. The calculation mechanism for fees can be manually created using tools like Excel or embedded into a fund accounting system like eFront.

By identifying the inputs, the manager can determine the fees they will receive on a quarterly basis. Accuracy in these calculations is crucial as they directly impact the investors who pay the fees. In some cases, interest calculations and hurdle rates may also be involved, where the manager is entitled to a share of returns above a certain performance threshold. Ensuring the accuracy and correctness of these calculations is important to maintain transparency and satisfy the investors who ultimately own the fund and its operations.

Waterfall calculations

Waterfall calculations refer to the process of determining the distribution of profits or returns among different stakeholders in a fund, typically in a hierarchical manner. This calculation determines the additional amount that each party is entitled to receive based on predefined agreements

Audit liaison

Audit liaison involves managing the audit process on behalf of the fund managers. During the audit, the auditors request information and supporting documentation such as accounts, ledgers, and backup agreements. The fund accounting team provides this information to the auditors and also manages the overall audit process. This includes coordinating with the auditors, ensuring timely provision of required documents, and facilitating communication between the auditors and the fund management team.

By offering audit liaison services, the fund accounting team assists in streamlining the audit process and ensuring compliance with auditing standards, regulations and meeting the audit deadline.

Portfolio analysis and reports

Portfolio analysis and reports are provided by the fund accounting team. These reports include ratios and calculations such as internal rates of return (IRR), both gross and net. These metrics are important for fund managers and investors to assess the performance of their investments. Some of these calculations may also need to be disclosed in the financial statements.

The fund accounting team can set up workbooks or systems to generate these reports based on the data available in their system. However, the specific analysis and reports provided may vary, depending on the client's requirements and the data available.

Overall, the fund accounting team is capable of producing portfolio analysis and reports to provide valuable insights into the performance and returns of the fund's investments.

Regulatory compliance

The fund accounting team ensures compliance with regulations by producing and providing the necessary statements, accounts, and reports to regulatory bodies, stock exchanges, and other relevant stakeholders within the required timeframe.

These include:

Annual audited financial statements: These are required by regulatory bodies such as the Guernsey Financial Services Commission (GFSC) and may also need to be released on the London Stock Exchange. The deadline for preparing these accounts may vary, with the GFSC typically expecting them within six months and the London Stock Exchange within four months.
Interim accounts: The London Stock Exchange may also require interim accounts, which are produced halfway through the year and need to be submitted within a specific timeframe.
Jurisdiction-specific requirements: Different entities and stakeholders may have specific timelines and requirements for receiving accounts based on their jurisdiction. For example, the local tax office in Guernsey may request a copy of the annual accounts within a certain timeframe.
Core documents of the fund: The offering memorandum or limited partnership agreement (typically produced by the fund’s lawyers lawyers) may specify that accounts need to be sent to investors within a specific time period. These requirements need to be factored in when producing and distributing the accounts.

What should you look for when appointing a third party fund accountant?

When appointing a third-party fund accountant, there are several factors to consider:

Track record and reputation: It is important to gather information about the organisation's track record and reputation as fund accountants or administrators. This can be done by seeking recommendations from auditors or other industry professionals.
Organisation's work approach: Understanding how the organisation operates and their work approach is crucial. This includes knowing the team that will be handling your work, their skills, experience, and the depth of their expertise. Assessing whether they have the necessary resources and capabilities to meet your requirements is essential.
Qualified and experienced staff: Ensure that the senior accountants working on your engagement are fully qualified and experienced. This helps to ensure that they have the necessary knowledge and expertise to handle the complexities of fund accounting.
Clear communication and responsiveness: A good third-party fund accountant should have effective communication channels and be responsive to your needs. They should be able to provide timely updates, address any concerns or queries promptly, and maintain open lines of communication throughout the engagement.
Compliance and security measures: It is important to ensure that the organisation has robust compliance and data security measures in place. This includes adhering to regulatory requirements, maintaining confidentiality, and protecting sensitive information.

By considering these factors, you can make an informed decision when appointing a third-party fund accountant that aligns with your specific needs and requirements.

Ocorian Fund Accounting

Our global team of fund accountants have expertise in fund accounting for private equity, private debt, real estate, infrastructure, venture capital and Shari’ah compliant structures for some of the world’s leading investment firms.

Our experienced fund accountants streamline and simplify your accounting processes across your alternative fund’s portfolio and lifecycle.

If you are interested in a career as a fund accountant with Ocorian, visit our careers page.