Shadow accounting is gaining attention throughout the fund management industry because of its unique ability to improve operational efficiency, reduce operating costs, and increase the speed and quality of reporting. In this blog, we will take a closer look at all the ways shadow accounting can help hedge funds improve operational efficiency.
What is shadow accounting?
Shadow accounting refers to a parallel accounting process that runs alongside the typical third-party fund administrator (TPA), also known as a fund administrator or “admin.” Shadow accounting maintains a separate set of books and records that mirror the transactions and positions tracked by the fund admin.
The purpose of shadow accounting is to provide independent, real-time verification of the accuracy and completeness of the fund admin’s data. Shadow accounting also serves as a control mechanism to help identify any potential discrepancies or errors in the data and reports provided by the admin.
How does shadow accounting drive operational efficiency?
Shadow accounting can improve operational efficiency in three ways.
- Boost accuracy and access
Shadow accounting eliminates bottlenecks and extra process steps by enhancing the accuracy of financial processes. It can perform complex calculations and reconciliations without the risk of human errors, which are common when these processes are done manually. Access to more accurate data enables timely monitoring of transactions and proactive resolution of potential issues, including financial discrepancies and the risk of fraud, at a much earlier stage, before they can affect operations.
- Cost-effective outsourcing
Shadow accounting is typically provided by a third party in a software-as-a-service (SaaS) model which is a much more cost-effective option than handling shadow accounting internally. The outsourced model provides scalability, so funds only pay for actual usage, without making complex and extensive technology infrastructure investments. All of this helps hedge funds and asset managers avoid excess spending while also reducing the need for manual workflow for transaction monitoring and processing.
- Reduced staffing costs
Building an in-house accounting and finance department can be very costly and difficult to manage. From hiring to onboarding to training to retention, asset managers must put in a great deal of time and substantial costs, not to mention additional office space and equipment. By leveraging shadow accounting services, hedge funds and asset managers can get all the benefits of streamlining these repetitive, time-consuming tasks without paying for a large in-house accounting team. Technology plays a critical role here because it is machine learning algorithms that help automate reconciliations, data entry, and report generation while improving accuracy. Not only do asset managers avoid the cost of creating an in-house accounting team but they can reallocate the existing team to higher-value tasks.
Shadow accounting services help asset managers gain access to more accurate financial data faster and make more informed decisions while minimizing manual effort and costs. The result is a significant gain in operational efficiency.
The IVP Shadow Accounting team offers comprehensive daily and month-end services that follow fund admins transaction by transaction, so asset managers can access a near-real-time view of results and gain a competitive edge.
Learn more about IVP Shadow Accounting or contact firstname.lastname@example.org to schedule a demo.
Learn how IVP Shadow accounting can help investment funds to verify the results of their outsourced administrator including NAV, fees, P&L and financial calculations.
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