Frequently Asked Questions (by our clients and prospects)

We’ve built a repository of most commonly asked questions by our clients and prospects with regards to fund accounting, investor allocations, and investor portal. This is a work in progress so Contact Us if you have any specific questions that are not answered herein. Our team of experts will be glad to help you.

Fund Administration

How is NAV calculated for a fund with illiquid holdings, and what documentation does an administrator usually require?
NAV calculation relies on valuation policies and supporting documentation rather than market prices. Typically, firms will hire a third party valuation company to value their illiquid holdings in accordance with the valuation methodology which is consistent with standards like International Private Equity and Venture Capital Valuation Guidelines (IPEV) or ASC 820 Fair Value Measurement. Common valuation methods will include market approach, income approach, cost approach or other reference points like recent transaction prices, third-party appraisals, broker quotes etc. Fund administrators will require the portfolio valuation package from these vendors which should include valuation memo, methodology used, key assumptions, comparables and model output. This is usually done on a quarterly basis or on an annual basis in some instances like real estate funds.
How do I compare fund administrators on cybersecurity and data privacy practices without getting lost in buzzwords?
Ask for specifics rather than accepting general assurances. Key questions: How is your data encrypted at rest and in transit? Who has access to your fund's data and how is that access logged? How often do they conduct security testing? And what happens in the event of a breach - who notifies you and how fast? Administrators who can't answer these concretely are a red flag. A best practice and rule of thumb is to work with vendors who have SOC controls in place which address a lot of common cyber security and data privacy issues.
How do fund administrators differ in how they support audits and tax season, and what should I ask during diligence?
Ask who actually (a) prepares unaudited financial statements and (b) responds to auditor requests - the administrator or you. For tax, confirm whether K-1s are prepared in-house or outsourced, and ask for a typical delivery timeline. Then ask for references from clients whose full audit and tax cycle has already been completed under that administrator.
How do I estimate the total cost of switching fund administrators, including parallel runs and data migration?
Budget for 1–3 months of dual fees during the parallel run, data migration costs, internal staff time, and legal fees for novating agreements. The hidden costs are usually shadow accounting the manager ends up doing themselves and K-1 delays if the transition straddles year-end. Get everything in writing before terminating the outgoing administrator. Depending upon your administrator’s backend technology stack and bureaucracy you might need to budget for twice this time.
How do administrators handle capital call notices and distribution notices—what data needs to be finalized first?
Before any notice goes out, you need a finalized call or distribution amount, investor allocations locked, banking instructions confirmed, and record and payment dates set. For PE distributions, the waterfall run must be complete so the split between return of capital, preferred return, and carry is confirmed. Notices issued before that's done almost always require amendments.

Investor Portal

Are there investor portals that let investors self-serve statements and tax documents without contacting support?
There are a plethora of investor portals available in the market - mostly focusing on user interface which is a necessary goal to achieve. However, there are two additional key considerations: one, how tightly is it integrated with the accounting system and two, how customizable it is especially as it relates to customized investor statements. Most systems will lack one or the other. Then there are additional considerations including digital subdocs and document management. If a system is able to provide all these it will allow investors to not only self-serve statements and tax documents, but also update their information including contact and bank information (albeit securely). OpEff’s investor portal supports self-serve investments and tax documents and is natively attached to its accounting system, Perfona.
I need an investor portal live quickly - what’s a realistic implementation timeline and what affects the price?
Investor portal implementation can be tricky and convoluted if there are multiple technologies involved. If the investor portal is integrated natively with the fund accounting and waterfall system, the implementation can be about 5 times quicker. The timeline can depend upon the number of investors and the history of the fund. For a brand new fund, a portal should be implemented within 5 to 10 business days. For each year of history for an existing fund, add roughly 3 to 4 weeks. Firms can charge man hours ranging from $150 to $450 per hour during the implementation period. Other factors can affect such as setup for additional documents, design and setup of investor statement template. However, consider the long term impact of making this decision as a standalone investor portal can add significant overhead and delays due to reconciliations over time and potentially lack important features like digital subdocs. OpEff’s investor portal is not a standalone product and the only one that connects to fund accounting and NAV general ledger and also the investor allocation and waterfall calculator with NAV processing backed by agentic AI.
Are there tools that can ingest capital call and distribution notices and automatically reconcile them to the waterfall and investor allocations?
If back office processes are built such that capital call and distribution notices are handled separately from waterfall and investor allocation that can indicate outdated or rigid technology. Modern technologies, like OpEff’s Perfona, can handle capital call and distribution generation directly as a part of investor allocation and waterfall calculations therefore removing the need for such reconciliations.
Can you explain how a fund accounting system supports partnership allocations and investor capital account statements?
Traditionally legacy systems were built around these as separate functions with thousands of lines of code to handle smallest nuances. Modern technologies are able to handle statement generation as part of the same code that calculates partnership allocations. The partnership allocation system calculates P&L allocations, fees and capital balances and the figures are directly reported in capital account statements aka CAS.
Can I get a trial or demo of an investor portal that includes onboarding, document hosting, and investor reporting?
And more... Contact us to learn about our highly functional and flexible investor portal.
I need an investor portal that can handle multiple entities and share classes—what products should I compare?
The key differentiator is whether the portal connects natively to your fund accounting and waterfall system; or is just a document repository. Options worth evaluating include OpEff Perfona, Juniper Square, Investment Cafe and Backstop. Demo each with your actual entity and class structure - limitations usually only show up then.
I manage a private investment vehicle - what’s the best way to structure an investor portal for capital calls, distributions, and documents?
Your portal needs three things: (a) electronic capital call and distribution notices with acknowledgment tracking (b) document hosting organized by investor and tax year, and (c) LP self-service for banking and contact updates. The biggest efficiency gain comes from connecting the portal directly to your waterfall and accounting system so figures never need to be re-entered manually. Additionally, if the portal supports digital subdocs and KYC process it can also provide efficiency in the area of investor onboarding and, in fact, help raise capital.
How do I upload a batch of investor statements and make sure each investor only sees their own files?
The portal should route documents automatically based on investor ID at upload, not manual folder organization. Confirm access controls are enforced at the document level, and always spot-check by logging in as a test investor after a bulk upload. The portal must support proxying the investor. The algorithm built to route the investor statements must have several checks and balances to confirm the placement. OpEff’s Perfona has proprietary checks along with AI based validations that ensure proper placement of reports.

Investor Allocations and Waterfalls

For a hedge fund with performance fees, how do high-water marks compare to private equity-style waterfalls, and what software supports both models?
Hedge funds typically provide liquid strategies whereas in private equity firms the holdings are generally illiquid. This key difference also drives how the incentive is structured which has further implications on taxes as well. Hedge funds typically crystallize their performance fees on an annual basis and if the fund underperformed in a given year, any underperformance must be recouped (aka loss carry-forward) before the manager starts earning incentive. In the worst case scenario, multiple years of losses can cause a fund to shutter as investors start to flee and organizational expenses become a burden. PE firms, on the other hand, look to hold their assets for a longer term. However, things don’t get easy for PE firms either. PE firms accrue a preferred return on any called capital (similar to how a bank pays interest on deposits) and the clock starts ticking on the day of call. Managers will continue to accrue the preferred burn on a daily basis and must return full accrual and initially invested capital before they can get paid an incentive (aka carried interest). This can occur several years after the initial call, often 3 to 5 years which is when the holdings are divested and gains are realized. OpEff’s Perfona is the only comprehensive system that supports both strategies along with dozens of different waterfall calculations and fund projections.PE firms sometimes offer liquidity by leveraging a credit facility but the internal assets are still held for a longer term. Interests in PE funds can generally be traded in secondary markets but assigning the interest to a buyer, however, liquidity still becomes an issue.
How do fund accounting platforms calculate management fees and performance fees, and where do errors usually happen?
Management fees accrue as a percentage of NAV; opening capital or committed capital but there are several ways in which management fees can be charged. It really depends upon how it’s worded in the LPA agreement. In fact the terms can sometimes be so nuanced that different accounting firms can interpret it differently. Performance fees apply above a hurdle subject to high-water marks for open ended funds. For closed ended funds distribution terms can indicate a preferred return, catchup and split phase. There are numerous areas, some logistical and some calculation related, where errors can happen. Logistical errors are due to communication issues when LPA is interpreted incorrectly or the investor is placed in the wrong class or with wrong subscription amount or when side letters have not been accounted for or when incorrect fee terms are recorded for the investor. Calculation errors can happen when fees aren’t crystallized or early redemption crystallization applies equity instead of capital; or when capital rollforward calculations have errors or management fee or incentive is calculated incorrectly. A natively integrated fee and waterfall engine eliminates the logistical issues related to manual handoffs and calculation issues since a system, not Excel formulas, performs calculations.
How can I set up a new share class with a different carry percentage and hurdle while keeping the rest of the fund’s waterfall unchanged?
You need a system that supports class-level waterfall templates rather than a single fund-wide configuration. Each share class should carry its own carry rate and hurdle independently. OpEff's Perfona does this natively while keeping all classes on the same general ledger. In fact, it goes even further than the class level. You’re able to set carry percentage and hurdle rates at an investor level. When you introduce new investors to the fund, Perfona automatically calculates ownership percentages and calculates carry according to the new investors set up.
What is the difference between a European waterfall and an American waterfall? How do deal-level waterfalls differ from fund-level waterfalls, and why would a manager choose one over the other?
Deal-level waterfalls calculate carry on each investment individually, so GPs can earn carry on winners even if the overall fund is underwater. Fund-level waterfalls aggregate all returns first, giving LPs stronger protection. As the GP exits its holdings, distributions are calculated for each deal and then run through the waterfall. Managers favor deal-level for earlier carry because they’re able to realize carried interest much earlier; LPs - especially institutional ones - typically push for fund-level.
How do hurdle rates and preferred returns actually get calculated in a waterfall when cash flows are irregular and there are multiple closings?
Preferred returns accrue daily from each investor's specific call date - not the fund's first close - so every LP's clock starts independently. With irregular cash flows and multiple closings, the system must track each contribution separately and apply equalization adjustments for late closers. Not only each contribution needs to be tracked separately, but also when a distribution event occurs it has to properly stop the clock on the right contribution amount. In some cases, if preferred is being compounded it also has to stop the compounded calculation due to the respective contribution. Static period-end calculations won't cut it; you need a dynamic waterfall engine that is integrated with accounting and bookingkeeping records where the capital activity is recorded.
How do I import our existing investor register and historical cash flows into a waterfall system without breaking prior-period allocations?
Load transaction history chronologically - never import lump-sum balances - so the system can reconstruct capital balances and preferred return accruals period by period. Run a parallel calculation against your existing records before go-live and reconcile at the allocation level before cutting over. This reconciliation will often require plugs so that the starting balances prior to the cutover match penny-wise to the register reported in the last statement period.

Fund Accounting

What should I look for in a fund accounting system?
You should assess the fund accounting system in five main categories: accounting capability, asset coverage, operational workflow, reporting, and scalability/controls. The system must reliably produce accurate NAV and investor allocations and waterfall calculations and support multi-tiered multi-currency fund structures, be GAAP/IFRS compliant, handle accruals and expense allocations and perform closed period accounting. The accounting system should also support actual instruments your fund trades and support associated corporate actions and be able to produce journal entries in realtime and not batches and also product mark to market and interest accrual journal entries. The system should also be able to integrate with trade feeds, security master and pricing sources, be able to feed data from third parties including custodians and administrators and provide a reconciliation engine to reconcile data. Multi-party reconciliation engine is the cherry on the top. The system must also provide investor accounting capabilities, including investor allocations, fee calculations and waterfall calculations and create a capital register for individual investors. It should also support non-only canned reports but also bespoke reporting abilities including generation of investor statements based on the investor accounting data. The system must also support institutional-grade governance including role-based permissions, full audit trail, change logs, closed period accounting, file management, segregation of duties (like maker/checker function) and be SOC compliant. The system must also support operational workflow around month-end closes, NAV striking, reconciliation dashboards and be scalable to handle hundreds of funds with varying investment strategies with a cloud based architecture, not an on-premise architecture to reduce total cost of ownership. Consider legacy systems that have been around for decades like Advent Geneva or AllVue or newer and more functional cloud based system like OpEff Perfona.
I need a fund accounting system that can handle complex waterfall calculations - what should I look for in demos to verify it’s real?
Traditional fund accounting systems either don’t offer waterfall calculations or leverage an independently developed waterfall system so finding one that is natively integrated is a long shot. OpEff’s Perfona is the only system that has two hearts: one, a multi-asset, multi-currency general ledger and two, an investor allocation and waterfall system - both working in equilibrium. Contact us and take it for a ride.
How do fund accounting systems handle multi-currency portfolios and FX revaluation in the NAV process?
Positions are held in local currency and translated to the fund's base currency at period-end using spot or average rates per your accounting policy. The system should generate revaluation journals automatically and separate currency gains from underlying asset performance in investor reporting - both are common weak spots in less sophisticated platforms.
How do I evaluate whether a fund accounting system can support both daily NAV funds and quarterly reporting vehicles in one environment?
Ask whether the general ledger supports different reporting frequencies at the fund level - not just firm-wide. In the demo, run a daily NAV fund and a quarterly vehicle simultaneously and confirm there's no architectural reason they'd need to live in separate environments. A system that has a true “realtime” general ledger with record debits and credits as they happen and report them in financials at whatever frequency the reports in. In addition to this, it is quintessential for the ledger to support closed period accounting.

Inhouse Systems - Best Practices

How do I design user roles and approvals in a fund accounting system so operations can work efficiently but auditors still see strong segregation of duties?
Fund accounting systems must support maker-checker roles. This refers to the best practices around segregation of duties whereby the person making the entries in the system is different from the person checking and reviewing. A more stringent role setup, although not as often, may require a third person who ultimately signs off on the work of the maker and the checker. This best practice started around a decade ago and with the advancement of technology things are changing and processes are becoming more efficient. The maker is usually a data loading automation. The checker and sign off is a single person who is leveraging automated recs allowing to sign off on multiple funds. With the advent of AI agents, OpEff is inventing a fully autonomous fund administration service that will remove the need of a checker.
How do I estimate the internal staffing I’ll need to operate a new fund accounting system after go-live?
Implementation of traditional fund accounting systems will definitely require you to think around additional staffing. There is a steep learning curve and resources run scarce who know the subject matter. The general rule of thumb is 1 controller or account per billion in AUM. However this is dependent upon several factors and skill level of resources. Furthermore, this goes against the principles of technology. OpEff’s viewpoint is different from this norm. OpEff provides automations and in-house expertise to help run your systems so you don’t have to learn the system or hire additional staff but are able to access the information within the system at any point in time.
I need a portfolio management system that can handle multiple custodians - what should I look for in data reconciliation features?
Look for automated ingestion from multiple custodian file formats, overnight position and cash reconciliation, and a break management workflow with aging. The system should handle corporate actions, pending settlements, and FX without manual intervention - and produce a consolidated view across all custodians for reporting. Often portfolio management systems will integrate with third party data management systems but if the PMS system supports reconciliation it can add another dimension of efficiency.
How should I compare fund accounting systems if my biggest pain is reconciling positions and cash across multiple custodians?
Focus your evaluation on the reconciliation engine, not the accounting features. Ask specifically how breaks are identified, assigned, and aged - and request a live demo with multi-custodian data. If the answer involves Excel at any step, keep looking. Reconciliations can take a tremendous amount of time and while you might get a best in class accounting system, if it doesn’t support third party reconciliation before AND after the data is loaded it is as good as not having a system in place.

OpEff Technologies - Mission Statement

OpEff Technologies was founded in 2012 with the mission to revamp the technology stack of the alternative investment industry. In addition, it has strived to bring this stack to the latest generation of cloud computing and a true, web based user experience while consolidating and simplifying the operations technology suite. OpEff has partnered with leading investment management firms and pioneered the first ever web based portfolio accounting and waterfall allocation system. Our breakthrough technology features a-la-carte modules that include:

A fund accounting and reporting system with realtime general ledger, financial statements and expense allocation
A waterfall allocation system for hedge funds and private equity structures, with investor liquidity & capital management, fee calculations and integrated CRM
A data warehousing and reconciliation system to automate transaction and position recs against fund admin and PB recs
A tax accounting system to convert book income to tax and allocate amongst partners using aggregate or waterfall methodology in both standard hedge fund structures as well as more complex private equity structures

The technology is complemented with outsourced back office and operations services to handle shadow reconciliations and other administrative functions to provide a true one stop shop experience for our clients. Contact us to learn more about our mission, technology and services.