Fund accounting monitors capital commitments, calculates NAV, manages compliance, and facilitates investor reporting. Despite its critical role, many firms still depend on spreadsheets, fragmented systems, and manual procedures to run their back office. This outdated strategy is unyielding, inefficient, and introduces financial risk.
Manual fund accounting is also resource-intensive, making it harder to scale and meet rising investor demands for transparency and momentum. Many firms are failing behind when they don’t adopt automated fund administration.
Manual fund management costs you more than just financial losses. Your private capital firm loses its competitive edge, operational flexibility, and investor trust. In this overview, we’ll look at the real costs, risks, and missed opportunities firms face by avoiding automation in fund accounting and what they can gain by making the shift.
The Current State of Fund Accounting
The alternative investment industry continues to face increasing strain from progressive regulatory requirements and rising investor expectations, particularly within private capital funds.
Global jurisdictions have stiffened disclosure norms, with structures such as the SEC’s Form PF amendments and the EU’s SFDR requiring transparent reporting. This calls for fund administrators to process larger volumes of compound data regularly and precisely.
But, several teams still depend on manual procedures, spreadsheets, and fragmented legal systems. Notably, an Asset Owner Transformation in 2023 report found that more than 55% of asset owners still rely on spreadsheets to track their asset allocation operations, a 40% increase from 2022.
These obsolete systems result in fragmented data, sluggish turnaround times, and restrictive audit trails.
In addition, the dependence on manual labor for repetitive tasks like report generation and reconciliation takes time and raises the risk of human error. For example, errors in NAV calculations or late reporting may cause compliance breaches, reputational damage, or possible investor attrition.
Still, without automation, the cost of maintaining a skilled back office team increases with fund complexity, shrinking the margins.
Key Hidden Cost of Not Automating Fund Accounting
Beyond inefficiency, manual fund accounting creates compounding risks across operations, compliance, and client service. Here are the granular hidden costs manual fund accounting firms face when they delay automating.
1. Operational inefficiencies and human error
Manual workflows are fundamentally slow and prone to errors. Data entry, reporting generation, NAV calculations, and reconciliation entail repetitive tasks that consume staff time and introduce discrepancies.
In Dynamo Software’s latest Frontline Insight Report, 61% of the respondents cite manual workflows as hindering efficiency. When relying on manual systems, teams usually struggle to reconcile inconsistencies across accounting systems, leading to potential inaccuracies in investor statements.
2. Lack of scalability and flexibility
The more private capital firms grow, the greater their need for scalable fund services automation. However, manual processes cannot keep up with this growing fund complexity and operational scalability. This means that scaling operations become cost-intensive in areas like hiring extra staff, which creates inefficiencies that limit long-term growth.
Still, adding extra funds or onboarding new investors without automation increases processing time and operational pressure, compounding the challenges in fund accounting.
3. Data silos and poor visibility
Fragmented accounting software and siloed systems limit access to comprehensive financial data. For example, spreadsheets usually exist in isolation and are not integrated into core accounting, compliance, or portfolio management systems. This hinders transparency, creates financial blind spots in performance and risk assessment, and lags decision-making.
4. Increased compliance and regulatory risks
Manually navigating Form PF, FATCA, AIFMD, and ESG disclosures is time-consuming and risky. Regulatory deadlines are usually strict, whereas errors in submission may lead to severe penalties. Automation promotes compliance by providing rule-based checks, audit trails, and automated alerts that manual processes cannot equal.
5. Resource drain and cost pressures
Experts in fund accounting often get consumed by low-value, repetitive tasks, such as data entry and manual reconciliations. This inefficiency in resource allocation inflates administrative and operational costs. Automation bridges this by reducing operational costs and saving significant costs. A case in point is JPMorgan Chase, which automated document analysis, reducing 360,000 manual hours and saving $28 million.
6. Inability to meet investor expectations
Investors expect precise, real-time financial data and smooth digital experiences. Manual report generation often leads to delays, outdated data, and a lack of transparency, ruining investor trust. Fund accounting automation enables real-time NAVs and on-demand access to portfolio information that match modern LP expectations and boost customer satisfaction.
Overcoming the Hidden Cost of Manual Fund Accounting
Adopting automation in fund accounting is a strategic requisite to overcome these hidden costs. Given the advancing investor expectations and regulatory complexity, private capital firms now require apt and swift ways of managing fund reporting. Automation tools eliminate manual hurdles and remodel how financial information is processed, delivered, and consumed.
Here are the benefits of automation:
• Real-time NAV calculations: Automated accounting systems can calculate NAV in real-time, lowering the delay of manual reconciliations and spreadsheets. The result is better accuracy, increased reporting confidence, and swift fund closings.
• Regulatory auto-alerts: Automated software allows firms to set rule-based alerts for filing deadlines, disclosure obligations, and policy updates. This reduces the risk of missed submissions and helps preserve regulatory readiness.
• Dashboards for GPs and LPs: Fund services automation platforms offer robust dashboards customized to GPs and LPs. The dashboards consolidate core metrics, such as capital calls, performance, distribution, and audit trails, allowing real-time visibility and better transparency.
Automate Fund Reporting with RAISE FAS
Manual processes slow down fund reporting and increase the risk of costly errors and compliance issues. You may not be able to keep up with compliance demands and investor expectations. Remember, the longer the automation delay, the higher the risk and the greater the cost.
RAISE FAS, a fund reporting automation platform, is built for private capital firms to address these inconsistencies. It enables real-time reporting and intuitive, customizable dashboards for both GPs and LPs in one integrated system.
Schedule a demo with RAISE and automate your fund operations.
