by Shay Caufield, PEF Services LLC

Shay Caufield at PEF ServicesComplex, non-standard reporting processes make it challenging for investors in illiquid alternative asset funds to review, analyze, and verify the data they need. This is a growing concern.  Limited Partners [LPs] struggle with reporting on fees and expenses to gain clarity on alternative investment fund fees and expenses.  In a recent Institutional Investor article, governance experts described a “broken system” of complex fee structures, hidden charges, and excessive costs.

Limited Partners often rely heavily on annual audits of alternative investment funds.  These audits are designed to ensure conformity with the applicable accounting principles at the entity or fund level and testing procedures, scope and materiality do not address individual investor requirements.

As investor and board expectations rise and compliance requirements become more onerous, the back office performs and increasingly critical function.  Limited Partners need to ask themselves this question:  are you able to accurately capture, report and analyze fees & expenses at the investment fund level?  If the answer is ‘no’, technology and back office services can offer support.

Whether serving public pension plans, corporate pension plans, foundations, and endowments, or fund of funds, LPs require a compliance procedure that is tailored to the individual investor’s needs.  The systems and processes need to identify areas of concern or discrepancy and provide a complete view of the fees and expenses paid at the investor level including:.

  • Management fee recalculation at the investor level
  • Incentive allocation modeling and verification at the investor level
  • A review of expense allocations in accordance with the LPA

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