Fund audit

Example

A calendar-year fund with $80M committed and twelve positions starts planning in November. The auditor sends confirmations to the bank, to portfolio companies for share counts, and to a sample of LPs for capital account balances. Fieldwork in February tests valuations on the four largest positions, which make up 70% of NAV, and agrees the partners' capital rollforward: opening $40M, plus $12M contributed, plus $9M net gain, less $3M distributed, closing $58M, tied to the sum of every LP statement. The opinion is signed on 10 April and the statements reach LPs before 30 April, the custody rule's 120-day deadline for the registered adviser that manages the fund.

Confused with

Fund administrator. Keeps the books. The auditor checks them, and the two must be independent of each other.

Surprise examination. The custody rule's other route, in which an accountant verifies assets without notice. Private fund advisers almost always choose the audit instead.

Operational due diligence. An LP's own review of a manager before committing. It reads the audit; it is not one.

In practice

The audit opinion covers the fund's statements as a whole, not any single LP's statement, which LPs sometimes misunderstand. Delays come from valuation support, missing portfolio company financials and late underlying fund audits. For a registered adviser the auditor must be registered with and inspected by the PCAOB. A qualified opinion or a late delivery is the kind of thing an LP's operational due diligence team asks about for the next ten years.