The right technology and support can reduce the stress, confusion, and inefficiencies during private equity fund audits.
Private equity funds undergo annual audits to assure its limited partners that the fund’s financials and operations are compliant with the limited partnership agreement. One of the objectives of the audit is to confirm that the fund’s financials provide a fair and accurate view on the fund’s portfolio investments and fair value. Therefore, during a fund audit, auditors will verify the fund’s ownership position in each portfolio company and valuation.
This process can be complicated because private equity backed portfolio investments are highly structured, consisting of separate legal entity structures; multiple classes of equity and debt instruments held between the fund, co-investors, and portfolio company management; and, each instrument in the capital structure having varying rights and distribution terms.
Without the right systems and support, the audit process of seeking to confirm the specifics of the fund’s ownership in each portfolio company – instruments held, percentage ownership, investment at cost, fair value, capital events, documentation support – can be time consuming and inefficient.
In addition to confirming the fund’s ownership in each portfolio company, the auditor will review the funds valuation in them. For private equity backed structures, this will often entail looking at how the enterprise value has been allocated under the waterfall method to account for the distribution rights of the different share classes and instruments. This too can be a complex and time-consuming exercise.
How DealsPlus helps you through the audit process
Accurate, verifiable portfolio ownership data
DealsPlus provides a single source of truth on ownership data across a fund’s portfolio holdings. This includes cap tables, transaction logs, documentation support, and structure charts (showing the full holding structure from the fund to the portfolio company). Auditors can be granted access to easily review and verify all the information during the audit process.
Equity valuation
Each portfolio’s waterfall model can be maintained in DealsPlus, showing the equity value split for each shareholder. The waterfall models are connected to cap table data that is generated from verified transaction logs, making the process robust and accurate. DealsPlus’ team of private equity specialists work closely with the fund to ensure the accuracy of your equity valuations.
Documentation
Auditors will often require additional documentation such as – documentation verifying cap tables, funding / cap table events, portfolio’s financial statements, interest schedules on debt instruments etc. DealsPlus stores all documentation in a connected manner, making the review easy.
Most importantly, DealsPlus’ intelligent workflows, smart calculation engine, robust data architecture, and on-call human support is tailored for private equity funds, to improve the quality and accuracy of your investment structure data. If you would like to learn more, get in touch.