Fund Accounting Is Not the Same as Company Accounting
An AIF's books have to track something a typical company's books never need to: money belonging to dozens of investors, each with different entry dates, different commitment amounts, and entitlement to different shares of gains, losses, fees, and carry. That's what makes fund accounting for AIFs a distinct discipline.
The Core Building Blocks
1. Capital Account Tracking
Every investor's capital account must separately track: committed capital, capital drawn down to date, undrawn commitment remaining, distributions received, and current NAV attributable to their holding.
2. Drawdown / Capital Call Accounting
Each capital call needs to be recorded against the specific investment(s) it funds, with clear linkage between the call notice, amount received, and units/interest allotted (see our dedicated article on drawdowns and capital calls).
3. Portfolio Valuation Integration
Fund accounting has to incorporate periodic valuation of unlisted holdings into the books, so NAV reported to investors reflects current, independently-assessed portfolio value rather than historical cost.
4. Fee and Expense Allocation
Management fees, fund operating expenses, and any fund-level costs need to be allocated correctly across investors — typically pro-rata to commitment or drawn capital, per the PPM's specific formula.
5. Distribution Waterfall Application
When exits generate distributable proceeds, the fund's accounting has to apply the distribution waterfall exactly as defined in the PPM — return of capital, preferred return/hurdle, GP catch-up, and carried interest split — investor by investor.
6. Subsequent Closing Mechanics
For funds still raising capital, accounting must handle catch-up contributions and equalisation payments from investors admitted at later closings, ensuring all investors are placed on an equitable footing as the PPM intends.
Why This Needs to Be Built Around the PPM, Not a Generic Chart of Accounts
Every one of the mechanics above is defined by the specific fund's PPM — hurdle rates, catch-up percentages, fee bases, and waterfall tiers vary fund to fund. Generic fund accounting templates routinely miss fund-specific nuances that then surface as audit findings or investor disputes.
Our Approach to AIF Fund Accounting
We build fund accounting models directly off each client's PPM, with explicit formula-level treatment of closing mechanics, drawdowns, and waterfalls — the same rigour we bring to financial model validation work for funds like BBF I.
This article is for general informational purposes. Please consult us for an accounting approach tailored to your fund's specific PPM.