Comparing PE Fund Accountant Skills to Mutual Fund Accounting skills
Private Equity (PE) fund accounting and Mutual Fund (MF) accounting di8er significantly
due to the nature of the underlying investments, structures, and reporting requirements.
Private equity fund accounting demands a deeper understanding of partnership structures,
capital commitments, and long-term illiquid investments, while mutual fund accounting is
more focused on daily liquidity, market pricing, and straightforward regulatory reporting.
The complexity of PE fund accounting, particularly around capital calls, distributions,
valuation, and financial reporting, distribution waterfall , sets it apart from mutual fund
accounting. Here's why PE fund accounts require di8erent skills compared to mutual fund
accountants:
1. Accounting Methodology:
• Mutual Funds: Most mutual funds are open-ended, meaning they allow continuous
inflows and outflows of capital, and use "open-ended fund accounting." This
approach involves daily Net Asset Value (NAV) calculations to accommodate the
constant buying and selling of shares.
• Private Equity Funds: In contrast, PE funds are typically closed-ended, where
investors commit capital upfront for the life of the fund. PE funds use partnership
accounting, which is more complex due to customized Limited Partnership
Agreements (LPAs). The accounting requires specialized knowledge, particularly in
managing capital commitments, distribution waterfalls, and partner capital
accounts, making PE fund accounting more challenging and distinct from mutual
fund accounting.
2. Cap-Stock Activity (Subscription & Redemption):
• Mutual Funds: Subscription and redemption in mutual funds occur daily and are
usually handled by Transfer Agents (TAs). Fund accountants mainly record the
transactions as per the data provided by the TA, and the process is relatively
straightforward.
• Private Equity Funds: In PE, the process is more involved. Fund accountants are
responsible for calculating capital calls based on investor commitments, issuing
notices to investors, and booking capital calls based on allocation files. They also
calculate and bill interest for delayed payments. The complexity and involvement
make PE cap-stock activity more intricate compared to mutual funds.
3. Valuation:
• Mutual Funds: Valuation in mutual funds is driven by daily NAV calculations, with
asset prices readily available from public markets. The process is standardized and
formulaic, relying on real-time market data, making it straightforward for mutual
fund accountants.
• Private Equity Funds: In contrast, PE funds conduct valuations on a quarterly or
annual basis due to the illiquid nature of their investments (private companies, real
estate, etc.). These valuations are subjective and require specialized knowledge,
such as understanding the fair value of illiquid assets, adjusting valuations, and
assessing portfolio company performance. PE fund accountants must have strong
skills in sector-specific valuation techniques.
4. Financial Reporting and Partner Capital Accounts (PCAP Statement):
• Private Equity Funds: PE fund accountants are deeply involved in preparing
financial reports in line with US GAAP, including the Statement of Assets &
Liabilities, P&L, Statements of Changes in Partners' Capital, Cash Flow Statements,
and changes in securities. They are also responsible for preparing Partner Capital
Account (PCAP) statements for each Limited Partner (LP). These statements track
each LP’s contributions, earnings, and distributions.
• Mutual Funds: Mutual fund accountants are typically not involved in detailed
financial reporting to the same extent. Mutual funds issue periodic reports like
annual or semi-annual financial statements, but they do not prepare PCAP
statements, as there are no individual partnership capital accounts to maintain.
5. Distribution Waterfall (Carried Interest / Performance Fees):
• Private Equity Funds: A key component of PE fund accounting is managing
the distribution waterfall, which determines how profits are allocated between
Limited Partners (LPs) and General Partners (GPs). The calculation of carried
interest (the GP’s share of profits) is complex and varies by fund and partnership.
Additionally, the management fee structure can change over the fund’s life,
requiring specialized knowledge to calculate fees and carried interest.
• Mutual Funds: Mutual funds do not have similar distribution waterfalls or
performance fees. The fee structure is simpler, typically involving fixed management
fees based on the fund’s assets under management (AUM), and there are no carried
interest calculations.
One of the common activities that both Mutual Fund Accountants and PE Accountants are
responsible is recording day to day cash activities on the system and reconcile with Bank
statements / Custody Bank statements. Other than that most of the activities are di8erent
and given the complexity of transactions and sensitivity of handling fund investment data
private equity fund accountants need more specialized expertise.
