Management Company Accounting – What Do GPs Really Need to Get the Job Done?

By: Manuel Villavicencio

Consulting Director
January 23, 2022

There are three things in a GP’s life that will never go away: taxes, information demands from investors, and the need for GPs to manage their own firms’ financials. While there have certainly been advancements on the private equity fund accounting side, many GPs are still reliant on generic accounting solutions to manage their corporate accounting books. The general experience is like trying to put a square peg into a round hole – it might fit eventually, but it’s going to take a lot of smashing (and frustration) to get it in there.

Investment management is a world with very specific idiosyncrasies in its structures, reporting, and data flows that are very different from other types of business service industries. Programs like QuickBooks, Sage, SAP, etc., aren’t tailored to the needs of private equity, venture capital, and real estate industries. Nor are they equipped to help GPs meet the evolving needs of their LPs.

Despite these roadblocks, too many GPs still rely on these generic solutions for their bespoke needs, sacrificing efficiency and increasing risk in the process.

Allvue’s Management Company Accounting Solution

Generic solutions for the complex issues facing investment management companies are a thing of the past. Allvue’s Corporate Accounting solution was built specifically for private capital fund managers, inclusive of several core features that distinguish our private equity software solution from a general, multi-industry accounting product:

DEMO: Allvue in Action: Simplifying Fund Accounting

Automated expense allocations and reimbursements (recharge)

Unlike other types of businesses, in private equity the treatment of expenses needs to be reported down to investors, including how they’re being allocated to the correct fund, investor, and portfolio company.

The challenge for GPs becomes how to do this efficiently, given that different they have different allocation methods. Furthermore, once allocated, the numbers need to make their way onto the funds’ accounts and be properly allocated down to the investor level for capital account reporting. Setting the timing of reimbursement is another consideration.

With Allvue’s corporate accounting solution, the process is fully automated. Expense allocations are automatically calculated and posted, and generate intercompany entries on both fund and corporate accounting books.

Consolidations and intercompany processing

With fundraising hitting new high watermarks year after year, many fund managers have clearly expanded their businesses – often attracting new investors from beyond their own domiciles. While certainly a positive, there are clear implications with new currencies, taxation, and reporting requirements.

As GPs set up more entities to address these needs, challenges arise when seeking a holistic view. GPs must have the ability to view operating results while still being able to drill down into key areas of analysis. For example, generic accounting solutions struggle with managing intercompany payments and tracking receipts made by individual management companies on behalf of other companies. Consolidated views are drastically curtailed and not as helpful as they could be if supported by a systematic review.

Allvue provides the functionality to bridge multiple management companies for consolidated accounting, reporting, and facilitates processing of intercompany transactions between one or more management companies.

Multicurrency reporting and FX functionality

Having multiple international management companies means having to deal with foreign currency transactions, not to mention reporting requirements that are both local and foreign. Looking up exchange rates manually for multiple currencies across numerous time periods can be tedious and error prone.

Allvue solutions eliminates manual FX lookup by feeding in historical exchange rates from market data providers and can be an enormous time saver. GPs should have multi-currency corporate accounting and reporting capabilities, with automated FX adjustments for non-local currency balances, as well as full financial statement translations, all supported from a FX data feed.

Multi-dimensional chart of accounts

Have you ever asked yourself: “What were our prior year operating expenses by department and office location?” or “What are the explanations for the variances between my actual and projected monitoring fees by portfolio investment?”

Non-PE specific accounting programs can, of course, track expenses in what would be considered traditional corporate categories. Where they begin to fall short is in the nuances of the private capital markets.

The complexity of the private capital ecosystem – managing multiple investment management companies, across multiple funds, portfolio companies, and investors — demands a more sophisticated solution. It becomes increasingly imperative – and difficult – to understand the factors that drive results given the layers of complexity involved.

Allvue Corporate Accounting software’s multi-dimensional chart of accounts allows PE Managers to set up a streamlined set of GL accounts with unlimited dimensions. This allows managers to track attributes such as deals, funds, sectors, office locations, departments, and anything else needed to understand and analyze operating results and budgetary variances in depth.

Implementation and support

Perhaps the biggest difference between generic accounting solutions and a PE-specific accounting provider is when the implementation and ongoing support ensues.

The question becomes this: when a GP is looking to implement a management company accounting solution, does the solution provider speak “Private Equity?” Meaning, do they understand the difference between a fund, portfolio company and an LP?

Implementing any kind of software solution, be it fund accounting, LP management or fund administration can pose challenges. But when the software provider understands your business – and the goals specific to investing in private equity markets – the process can be made much simpler and less aggravating. Unlike Excel and other generic tools, Allvue was created specifically for the needs of the private capital markets. We have an in-depth understanding of the challenges our clients face and have created a library of solutions to support the smallest of tasks to the largest of obstacles.

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More About The Author

Manuel Villavicencio

Consulting Director

Manuel is a Consulting Director at Allvue. Manuel has worked with private equity clients and other leading asset management firms and fund administrators for over 17 years, leading various business consulting and technology implementation projects. Prior to joining Allvue’s predecessor, AltaReturn, Manuel was a Senior Manager in Ernst & Young’s Asset Management advisory practice where he spent six years advising clients on operational improvement initiatives and vendor selections. Manuel has spoken at a number of industry conferences and has authored whitepapers focused on trends in private equity operations. He is a licensed CPA with a Bachelor of Accounting from Florida International University and a Master of Business Administration from Columbia Business School.

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