Reimbursements: Closing the Loop on Expense Allocations

Expense allocation is a complex process that relies on multiple data points that may or may not be available when vendor invoices come due. To avoid late payments, management companies (ManCos) often pay vendors out of pocket. Expense allocation eventually determines each fund’s pro rata share of this expense, after which the funds must reimburse the ManCo for the advance.

Reimbursement, however, is more involved than sending the funds an invoice. Fund controllers have their own procedures to follow, and the stakes are high:  overcharging a fund risks trouble with the SEC or investors. Accordingly, fund invoices require appropriate documentation and must be approved by fund controllers, if not senior management. Everyone involved needs to update their books and records, and just because a fund approves an invoice doesn’t mean it has been paid.

Even for smaller investment managers with one ManCo and a handful of funds, the reimbursement process consumes considerable time and effort, tying up cash that could be used more effectively. The process is far more complicated for large investment managers with multiple ManCos, multiple fund administrators, and nested fund structures. Most investment managers would prefer to handle reimbursements monthly, but the challenges involved mean reimbursements occur quarterly at best.

For this reason, more and more hedge fund and private equity managers are choosing innovative automation solutions designed to accelerate the reimbursement process. One of these is the Expense Allocation System (EAS)™ by IntegriDATA, an Indus Valley Partners company—a game-changer for simplifying and streamlining expense management.

Fully featured expense allocation solutions must go beyond expense allocation to automate reimbursements and close the loop on the entire process. Solutions like EAS effectively act as a subledger for intercompany transactions, automatically updating allocations and reimbursements as new information becomes available (such as updated NAVs) or events occur (such as deal breaks). EAS also brings structure and control to reimbursement approvals, which are handled in-system and give fund controllers a complete picture of relevant details, invoices, and activity. Even better, EAS enables fund controllers to get involved earlier in the allocation process and challenge issues long before they receive a reimbursement invoice.

EAS automatically closes the process when reimbursement invoices are approved, integrating with both ManCo and fund general ledgers to book the applicable journal, accounts payable, or accounts receivable entries. Finally, EAS accelerates reimbursement by sending payment details to a payment management system, such as the IVP Cash Management Solution, or by sending invoices, approvals, and other necessary documentation to a fund administrator.

For any investment manager seeking more timely reimbursements, here’s how the Expense Allocation System can help:

• Automated allocations: Automatically updates allocations as new information arrives or events occur
• Simpler accounting: Intercompany transaction subledger integrates with general ledgers to auto-book entries
• Streamlined approvals: Systematic, controlled, and auditable workflow for every step of the process
• Accelerated payments: Communicates payment instructions for faster reimbursements

Learn more about the Expense Allocation System (EAS)™ by IntegriDATA, an Indus Valley Partners Company right now or contact us at sales@ivp.in to set up a live or online demo.