Although a third-party administrator can take on the function of calculating a hedge fund’s official Net Asset Value (NAV), it remains the investment manager’s responsibility to investors to verify the portfolio’s numbers. Therefore, over the last 10 years, an increasing number of hedge and other investment funds have adopted “shadow accounting” — keeping a complete separate set of fund records for the sole purpose of finding and correcting mistakes — in order to enhance the accuracy and integrity of their data.
Some funds perform shadow accounting in-house, though it can place a significant burden on a fund’s financial, IT, and human resources departments. As a result of that and because of increasing regulations and investor demand for transparency, hiring a third party for this role has become the new industry norm. By outsourcing the shadow accounting responsibility, a fund manager can also focus on important core activities, such as portfolio management, raising capital, and strategic planning.
Gemini has developed our own solution to capture, reconcile, and verify the price of your hedge fund’s portfolios. This “shadow” of your administrator’s reporting offers the important independent verification that investors demand. Gemini offers a full suite of solutions for shadow accounting, including:
Portfolio reconciliation for a wide range of fund structures to include standalone, master feeder, side-by-side, fund of funds, and more
NAV reported daily, monthly, quarterly, or annually
Financial reports and statements including balance sheet, income statement, general ledger, statement of changes in partners’ capital, investor statements, statement of changes in financial condition, and performance tables
Review of annual audited financial statements once drafted by your current administrator and before submitting to the fund board for review and/or the auditor for review and attestation
Capital accounts or unitized values
Calculation of management fees and incentive/performance fees
Assessment of subscription documents, confirmation notes, share/unit transfer requests, capital call requests, and redemption requests
Authentication of calculations for fund balances and distributions
Review of anti-money laundering (AML) documents
Review of board presentations
If you choose, Gemini can also shadow only certain elements of your books and records, such as just portfolio accounting.
The decision to outsource shadow accounting depends on many factors, including internal resources and investor demand. Contact us to determine if Gemini’s solution is right for your fund.