Fund Accounting 101: Capital Activities

Capital is the lifeblood of your investment fund. The ability to raise and deploy capital is the expertise you bring to investment management. How to account for your capital flow, manage its movements and report on it with accuracy, clarity and compliance is the critical task of a fund accounting provider. How your fund will operate with regard to capital flow should be discussed in detail with fund accounting at the outset of working with your fund accounting provider. Setting up a coherent process that reflects the way you do business avoids errors, misunderstandings and audit inquiries that can cost unnecessary time and money. It will also streamline and automate many essential functions that would otherwise cost time and money on an ongoing basis.

Capital Contributions

Capital contributions to the fund are the first concern. How capital comes into the fund and how it is tracked will be important for distributions, capital calls and audit purposes. If there are multiple share classes, general partners and limited partners, multiple dividend rates or legacy investors assigned into the fund, all this needs to be coded and tracked at the outset for accurate payments and financial reporting. Does historical activity need to be maintained to account for break points and thresholds? Will investors receive warrants and how will they need to be tracked? Will in-kind contributions be accepted? If so, how will any excess value be allocated? Will the investor be treated differently in any way? Will the general partner be allocating carried interest into the fund?

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