Five Key Benefits of Outsourcing Shadow Accounting
What is Shadow accounting for hedge funds? Shadow accounting is a practice utilized by investment managers to maintain a parallel set of fund financial records to check the accuracy of their primary portfolio and fund’s official Net Asset Value (NAV) calculation. Below we will delve into the top five reasons your firm should consider an outsourced shadow NAV solution today.
1.) Independent review
When a fund administrator maintains a shadow NAV for a hedge fund, they provide independent verification of a fund’s performance and valuation. While the primary book of record is essential for regulatory reporting, the shadow NAV serves a critical role in ensuring that discrepancies are identified and can be resolved quickly.
2.) Cost Reduction
An outsourced shadow accounting solution may appear to be an added expense; however, it may actually be a low-cost alternative for investment managers who typically do in-house. Costs such as paying salaries for internal back-office operations staff and license fees for accounting software solutions can be mitigated. Those costs would no longer be necessary when shadow accounting is outsourced to a trusted third-party provider.
3.) Mitigating Risk
Shadow accounting may act as a risk mitigation tool by identifying potential errors in the fund records before statements are sent to investors. If an investment manager is utilizing a third-party administrator for the calculation of the fund NAV, as the final approver, the investment manager is still ultimately responsible for the accuracy of the calculations. Leveraging shadow accounting services to identify errors prior to sending statements to investors is a proactive approach that reduces the risk of reputational damage from restatements.
4.) Access to Expertise
Choosing to outsource to a trusted fund administrator grants an investment manager access to an experienced team of hedge fund accounting experts; a team that has access to top-of-the-line fund accounting software. This allows Investment managers more time to focus on the core of their business, providing superior returns while developing and maintaining investor relationships.
5.) Commitment to Best Practices
Choosing to outsource shadow accounting to a fund administrator signals to current and prospective clients that your organization values accuracy, transparency, and a commitment to excellence, you are dedicated to providing your clients with accurate reporting and are committed to following industry standards and best practices.
As an investment manager in today’s competitive fund market, delivering accurate and timely information to investors is paramount to building trust. Outsourcing of many functions continues to trend upward for investment managers due to a myriad of benefits. Choosing to partner with a trusted fund administrator allows you to invest time back into core business drivers of investment strategy and client servicing while having the peace of mind that financial records are being reviewed with expertise.
