Private Equity Fund Accounting

 When we receive dividends from the investment or when we sell the one of the investments we have & realized those proceeds, we will distribute the proceed received from those investments to the investors. For our Client funds we will distribute the proceeds only if the amount to be distributed is 2 percent or more than 2 percent of the commitment, so it will be different for different Client according to the wish of those fund managers, we can know those rules from LPA of the respective fund. The following will be the accounting entries we will post during distribution. When we receive distribution, we can know the same from the emails. If we miss the email we can know the same while posting daily cash booking. Generally while posting the journal entries we see the narration in the bank statement & we know the type of expense by narration, if there is any income in the bank statement & if we already check the email regarding distribution (99 percent of the cases we do)...

In our firm, we call it capital calls as usage, we call the funds from the investors so we can use the money for our intended investments. Along with funds for investments purposes we also call the amounts required for the organizational expenses & management fees. These capital calls are called within the commitment (committed by the investor). Some funds treat the expenses & mgmt. fee as outside the commitment. First client (GP) will send the instructions about his intention to capital call for the investment purpose, then we check the available funds in the fund bank account. When the capital call is for investment, funds are not available generally, also we check whether the funds are sufficient for the fund expenses & mgmt. fee, if not, then we also ask the GP to call for further 2 or 3 quarters of fund expenses & mgmt. fee. GP will gives approval for the same or he will asks to call for only 1 or 2 quarters of fund expenses & mgmt. fee. When the GP approves th...

Net Asset Value is calculated quarterly for the private equity fund & we fund accountants will prepare the NAV workpapers for the calculation of NAV per investor. In private equity funds, NAV represents the value of an investor’s investment in the fund at any particular time. The values of all the holdings in a fund plus any other assets, such as cash, minus any unpaid expenses will represent the total NAV for the fund. It is common to see a private equity fund's net asset value, or NAV, referred to as its residual value, since it represents the value of all investments remaining in the fund portfolio. As a fund we need to book the accrual entries. management fee payable entry & MTM Mark to Market entries before starting the preparation of the NAV. We also vouch the payments made if they booked correctly under their respective heads by checking the invoices of the payments. if they are booked under wrong heads then we will correct it. Next we will book the accrual entries...

This is date where the admission of new partners into the fund will be final & after this date no new partners will be admitted into the fund. If it is 7th closing for example, we call it as 7th & final closing as we mention this in the narration of the entries we book. After this closing the total commitment in the fund will be final. there will no changes in the commitment amount of the fund after this date. Capital Call receivable entry, Cash received entry & Sub Close interest entries are same as we booked in the Subsequent closings. Points i missed to mention in the previous 2 posts about IR team feeding investor names into the Investran CRM. During the admission of the new partners into the fund, Investor relations team will feed the names of partners & allocate the commitment of the respective partners into the Investran. After the (Investor Relations) IR team confirm about the feeding of investors names & their respective commitments into the Investran we wi...

Until the final closing of the fund which is the date of final close mentioned in the fund's LPA, usually 1 year from the intial closing date, GP will allow the admission of partners into the fund. These admission of partners in between the intial/ 1st closing & the final closing are know as subsequent closings (we can name them 2nd, 3rd, 4th ....... closings etc.)  We account them similar to the 1st closings, commitment of the fund increases when we admit new partners into the fund in these subsequent closings. But beside these entries we will calculate sub close interest & will charge interest to the new investors & that interest is accrued as income to the existing old investors during that subsequent closing. We will set off that accrued interest income to old investors in future capital calls or closings where we call capital from all investors. The entries will be same as the entries booked on the 1st closing. Receivable entry : Capital call receivable a/c  ...

 This is the step where fund comes to life in the eyes of the fund accountant, until that GP will be taking care of all the requirements for the setting up of a fund. 1st Closing is basically the admission of the partners into the fund, Investor Relations (IR Team) team will took all the details from the GP (client) like Commitment, Region of the investors & feed those details into the accounting software (Investran we use). During 1st Close some percentage of the Commitment will be drawdown (called) from the partners. following are the accounting entries we will book for the 1st Capital Call. Expenses incurred till now (only banking expense will be there as bank account is already opened on the name of the fund).                                                                            ...

 In this blog i will explain the total private equity fund accounting from start to finish for a fund from an Fund Accountant perspective. Following are the accounting we done over the life of a fund. 1st Close Subsequent Closes Final Close Preparing Quarterly NAVs Capital Calls Distributions Liquidation This is what happens from an accounting point of a view during the life of the fund. Over the life of a fund an accountant will involve in accounting for all these steps. Besides these we will post the daily bank transactions like expenses into the books of accounts & prepare PCAPs quarterly after NAV is approved by the Client (GP of the Fund).