Why is Shadow Accounting Essential to Run a Hedge Fund?

The fast-paced industry has made shadow accounting a not to ignore factor in running the hedge funds. Shadow accounting brings a lot of competitive benefits such as it enhances transparency, helps Shadow NAV Administrator catch errors apart from delivering excellent operational independence and security. However, the infrastructure cost and complexity involved in shadowing made only the best-resourced hedge funds to fully utilize shadow accounting.

Nevertheless, that’s not true now. With the change in industry trends, the demands have entirely flipped to the next level. The technology advancements and enhancements in service delivery made shadowing within all the hedge funds’ reach.

Whether you run a small hedge fund or a bigger one, shadow accounting is within your limits. Here are the reasons why shadowing is an essential factor in running the hedge fund.

Four reasons that make shadow accounting a priority for hedge fund

1. The client expects the best services

Every client wants high-quality services in the quickest possible time. The investors also look for the firms who can eliminate the market risks and mitigate the operational errors. Aligning with this thought, the shadow accounting infrastructure offers transparency, accuracy to eliminate the mistakes and ultimately enables the hedge fund to manage and control the risk. Additionally, with shadow accounting, the fund administrator gets a supporting factor to eliminate the probable errors.

Besides, the allocators are also expecting vast & informative reporting and timely delivery. In fact, most of the allocators can’t even wait for the month to end or beyond for the NAV pack from the shadow NAV administrator. These rising expectations have one solution – shadow accounting. It equips the managers with all the data they need, prepares reports and sends them for further action without having to wait for the official records from the fund administrator.

2. Meeting the investors due diligence demands

A robust shadow accounting infrastructure impresses the investors and satisfies their due diligence demands, thus enhancing the chances to attract great inflows. That becomes more significant in today’s fierce competition, where every firm has devised great strategies to attract potential investors. You will have to stand out by building your best-showing infrastructure.

 

Even before listening to the portfolio manager’s fund management strategy or the product USP, investors want to know that their money is in safe hands with adequate accountability. It is required from the firms to keep their accounting fundamentals in the right place. One misaligned information in the due diligence report will result in proposal refusal from an investor.

3. Shadow accounting improves the fund’s infrastructure

Another critical factor that crops up the need for shadow accounting is enhancing the fund’s performance and building a robust fund infrastructure. The real-time, accurate, and direct access to the accounting book of records provides a vital and valuable fund infrastructure foundation.

 

Such a strong foundation helps take a well-informed decision from a consolidated data store, which is up-to-date as per the accounting standards. The entire process enhances the management information reporting, front-office tools and risk mitigation functionality of the firm. All these factors impact the investor’s decision making and articulating the competitive edge to the allocators.

4. Shadowing provides flexible operational activities and independence

Indeed shadowing provides operational flexibility to the firms, allowing them not to rely too much on third-party administrators. Along with flexibility, shadow accounting mitigates the fund’s risk. Besides, shadowing gives an independent approach to thinking and knowing whether you are getting reliable information.

An accurate shadow NAV administrator accounting is bliss for a hedge fund. It helps in data verification once hedge fund managers receive the information, identify the potential threats and fix the error if any. To be precise, hedge funds get full control over their data and have the mobility to proceed the way they want to.

The Bottom Line

Our verdict is that the shadow accounting system benefits several small departments, centers and more prominent firms through financial accounting and departmental management systems. With the help of the Best Global Fund Administrator, you can enhance your true shadow accounting capabilities to the topmost market quality. Running a hedge fund will be an easy task once you implement the shadowing effectively.