Fund Administrator or Accounting Firm: Who Keeps Which Books

Our administrator covers the fund only. Who keeps the GP and management company books?

The general partner (GP) and management company need accounting work assigned separately when the administrator's agreement covers only the fund. A fund's completed net asset value (NAV) report does not close either management entity's books or prepare its return.

The SEC describes a fund's adviser and other management entities as separate legal entities with their own owners (Starting a Private Fund). The IRS says to keep a complete, separate set of records for each business (Publication 583).

Read the administrator agreement by entity name. Then assign the uncovered work:

• GP books: the GP's fund interest, profit allocations, distributions, expenses and amounts owed to or by related entities.
• Management company books: management fee income, salary costs from payroll reports, operating expenses, owner payments and balances with the fund or GP.
• Tax work: the federal return for each entity's tax classification (Form 1065 for a partnership when required), required state and local filings, and its owners' tax statements. A New York City management company or GP may owe unincorporated business tax; see NYC tax for fund managers.

Assign payroll tax deposits separately. Under section 6672, responsible people who willfully fail to remit withheld taxes can owe the unpaid trust fund tax personally (IRS: trust fund recovery penalty). The IRS generally has 10 years after assessment to collect, subject to suspensions or extensions (IRS collection period).

For the launch filings and division of responsibilities, see the first tax year for a new hedge fund.

Can one firm handle the fund, GP, management company and principals' returns?

One accounting firm can be engaged for all of that accounting and tax work, provided its scope covers each entity and each principal separately. Attach an entity list and name who approves each set of books and return. Scope the group through fund accounting and tax work. The fund auditor's independence review must also cover work for the adviser and controlling GP, which are included in the audit client (Rule 2-01(f)).

Include each principal's personal return expressly. Describe income outside the fund group, such as wages, rental income, self-employment income and investments. Confirm whether a joint return, the spouse's records and any US–Canada tax work are included. Arrange any needed access to each entity's and principal's IRS records separately (Form 8821 instructions). For detailed personal-return scope, see choosing a CPA for many fund investments.

What does a fund administrator do that an accounting firm does not?

A fund administrator usually provides investor operations alongside fund accounting. An accounting firm usually provides books, tax returns, K-1 preparation and tax planning. The agreements decide the actual division; the services can overlap.

These are service descriptions, not a legally fixed division of work. Form ADV separately asks whether a fund uses an outside administrator, who sends investor statements, and whether assets are valued by someone unrelated to the adviser (Form ADV Part 1A, Schedule D).

An outside NAV calculation is not necessarily an independent valuation of every asset. Ask who supplies prices, who reviews hard-to-value holdings and who approves valuation changes. A provider calculating NAV from manager-supplied prices may offer less independent valuation work than the investor expects; the SEC staff describes that distinction in its report on administrator services.

AML and KYC responsibilities also need a separate review. FinCEN has postponed the AML rule for registered and exempt reporting advisers until January 1, 2028; an onboarding service description does not establish which legal duties currently apply to the adviser, fund or another regulated provider (FinCEN postponement notice).

Can a small fund run without an administrator?

A small US private fund may use an accounting firm for its fund books if the fund documents, investor commitments and applicable regulatory requirements permit that arrangement. The federal investment-adviser custody rule does not itself require a provider called a fund administrator.

Investors may make outside administration a condition of investing. An auditor may ask how accounting records and valuations are prepared and reviewed. Those expectations depend on the engagement and fund; neither establishes a universal asset-size threshold for hiring an administrator.

Custody-rule compliance is a separate question. Acting as GP or managing member with legal access to fund assets counts as custody, even when a custodian holds them. For an adviser registered or required to register with the SEC that has custody, the custody rule provides an annual-audit route for pooled investment vehicles. Under that route:

• The fund undergoes an audit at least annually under US generally accepted auditing standards (US GAAS).
• Audited financial statements prepared under US generally accepted accounting principles (US GAAP) reach all investors within 120 days after the fiscal year ends.
• The independent public accountant is registered with, and subject to regular inspection by, the Public Company Accounting Oversight Board (PCAOB) at the start of the engagement period and each calendar year-end.
• The fund also undergoes an audit upon liquidation, with audited statements distributed promptly afterward.
• Delivering statements solely to related pooled vehicles, such as affiliated feeder funds, does not satisfy the rule.

These conditions come from 17 CFR 275.206(4)-2(b)(4) and (c) and SEC custody-rule questions, VI.5–VI.9. SEC staff conditionally permits 180 days for qualifying funds of funds and certain related structures, or 260 days for qualifying top-tier pools. These are staff non-enforcement positions; confirm eligibility and the fiscal year-end from which each period runs.

Hiring an administrator does not satisfy the audit-route conditions, and using an accounting firm does not remove them. An adviser that does not use that route generally needs a surprise examination and custodial account statements under the rule, subject to its exceptions. The audit route also does not remove every other custody safeguard. Have securities counsel assess the adviser's registration, custody and any state requirements before choosing the arrangement.

An accounting engagement must preserve the auditor's independence. Preparing accounting records that the same firm audits can violate the applicable independence rules, including for the adviser and controlling GP (Regulation S-X, Rule 2-01(c)(4)(i)). Do not assume one firm can both keep the fund books and perform the required independent audit.

What should a fund accounting engagement include?

A fund accounting engagement can cover NAV, each investor's capital account, profit and loss allocations, and investor statements. NAV is assets less liabilities. A book capital account tracks an investor's contributions, share of book profits or losses, distributions and other adjustments. Allocations divide profit or loss among partners (capital-account rules). Specify each output, its frequency, the accounting rules it follows and its reviewer.

Ask whether the scope includes:

• Reconciling cash, investment positions, purchases, sales and income to source records.
• Recording expenses, unpaid bills, management fees and any performance-based profit share allocated to the GP or other carry recipient named in the fund documents.
• Calculating NAV using the agreed valuation process.
• Maintaining each investor's contributions, withdrawals, distributions and book capital balance.
• Preparing financial statements and investor statements, with clear delivery responsibilities.
• Preparing tax adjustments and allocation schedules for the return preparer, and supporting audit requests.

The engagement should identify who supplies records and approves valuations, fees and allocations. The SEC explains that fund documents govern capital commitments, profit sharing, fees and withdrawal rights (Starting a Private Fund). The accounting scope must reflect those terms.

Book capital and K-1 tax capital serve different purposes and need a reconciliation; see fund tax capital and allocations.

Who prepares Schedule K-1: the administrator or a tax firm?

Either provider may prepare Schedule K-1 if its engagement includes tax preparation. This statement reports each partner's share of income, deductions and credits; the partnership fund must furnish it to its partners by its return deadline, including extensions. Assign Schedule K-3 preparation and delivery when required; international reporting exceptions need a separate check. An ordinary Form 1065 is signed by a partner or LLC member, with an authorized individual signing for an entity partner; the paid preparer's signature is additional (Form 1065 instructions, Who Must Sign and Schedule K-1). Assign preparation, review and delivery explicitly: posting a document for investors does not establish who prepared or approved it. For the close sequence and K-1 deadlines, see getting fund tax forms out on time.

How much do fund administrators charge, and what drives accounting fees?

Administration and accounting quotes depend on the work required. Compare the same entities, reporting frequency and deliverables before comparing fees; a fund-only quote and a quote covering the whole management group have different scopes.

Ask which work is recurring and which requires a separate quote, including catch-up books, amended returns, additional investor reporting and a provider transition. Identify whether tax preparation and audit support are included. An audit is a separate service to scope.

State filing obligations depend on the fund's facts and each state's rules; see fund state returns and nonresident withholding.

Can one firm keep the books and file returns for many SPVs or deals?

One firm can be engaged across multiple special purpose vehicles (SPVs), meaning entities formed for particular investments or deals. Each entity still needs identifiable records, and each entity classified as a partnership needs its own Form 1065 when filing is required.

The IRS generally requires a domestic partnership return unless the partnership receives no income and incurs no expenditures treated as federal deductions or credits (Form 1065 instructions, Who Must File). An entity's name or LLC status alone does not determine its federal tax classification.

A narrow section 761(a) exception covers qualifying investment co-owners who retain separate disposal rights and can compute income separately. All members must elect; the usual method is an election statement with Form 1065, signed by a partner, by the first election year's return deadline, including extensions. Later returns generally are not required while the exclusion remains valid (26 CFR 1.761-2(a)–(b)).

Give the preparer a complete entity list with ownership, tax classification, tax year and prior returns. Keep deal contributions, distributions, expenses and balances with related entities identifiable in each set of records. Common owners do not turn separate partnerships into one partnership return.

For holding LLCs and which entities file separately, see running more than one business.

When should we add an administrator or change administrators?

Revisit the arrangement when investor requirements or operating work exceed the existing scope. Adding an administrator may address investor operations while the accounting firm continues the GP, management company and tax work.

Review the scope when subscriptions and redemptions increase, investors request independent NAV work, valuations become harder to support, or statements repeatedly need corrections. First identify the missing function: adding an administrator will not fix unassigned management company books by itself.

Before a change, agree on a transfer date and obtain the closing ledger, reconciliations, investor register, capital histories, valuation records, fee calculations, prior statements and tax workpapers. Assign responsibility for open issues and the next reporting period. Compare the outgoing closing balances with the incoming opening balances before new statements are issued.

Keep tax supporting records through each return's limitation period, generally 3 years after filing or the due date, whichever is later. Keep asset-basis records through the limitation period for the taxable disposal year, and employment tax records for at least four years after tax becomes due or is paid, whichever is later; unfiled or fraudulent returns have no limitation period (Publication 583).

Example

The fund amounts are illustrative and in US dollars. A calendar-year fund has $60 million of assets. The fund and management company keep accrual books. Its administrator calculates NAV monthly, but the agreement covers only the fund.

The fund records a $200,000 quarterly management fee payable to its management company. The management company needs to record the corresponding receivable and fee income, along with its own expenses. The calendar-year GP, taxed as a partnership in this example, is allocated $300,000 of fund profit.

No one has been assigned the GP or management company books. Even after the fund supplies its K-1 to the GP, the GP still needs its own return and K-1s for its partners. The GP's return and K-1s are ready in April. Its ordinary deadline is March 15; a timely Form 7004 moves it to September 15. Without that extension, the GP owes $260 per person who was a GP partner during the year, for each month or part of a month late, up to 12 months, unless reasonable cause applies (Form 1065 instructions, Form 7004 instructions, current penalty amount). Late K-1s can carry a separate penalty; see getting fund tax forms out on time.

The manager adds separate bookkeeping and tax scopes for the GP and management company. The administrator continues calculating fund NAV. The asset value did not identify the gap; the entity list and agreements did.

Different for you?

• The fund has an administrator, but the GP or management company books are uncovered: bring the administrator agreement, entity list, investor count and prior returns to scope fund accounting and tax work.
• The management company needs routine bookkeeping: see doing your own books or hiring a bookkeeper.
• Records are months behind: see catching up on overdue books.
• The next K-1 cycle is already at risk: see getting fund tax forms out on time.
• A real estate deal has no administrator: see real estate syndication tax returns.
• A principal also receives K-1s from other funds: see choosing a CPA for many fund investments.
• Foreign investors change the tax scope: see foreign partners and partnership withholding.