The Fundamentals of Hedge Fund Management, 2nd Edition

CHAPTER 4

Hedge Fund Accounting

Numbers never lie, and as we all know, numbers are important to the success of a hedge fund. Therefore, paying attention to the numbers in a hedge fund operation is the most important task. The numbers can include the investment price, the brokerage cost, the service provider fees, or the portfolio performance. All are key to the hedge fund's long-term success.

As a manager, you need to pay attention to the amount of assets under management, the profits and losses, the number of investors, the operating costs, and the fees you earn. Whether you like it or not, your job is to pay attention to the numbers because the buck stops with you.

In the beginning, you and your team will do the work. However, along with the work that is done internally, you will need to have work done externally. The accountant or auditor and the administrator provide these services.

This chapter is divided into two sections. The first section is on taxes and the audit functions of hedge fund operations; the second section is on the services an administrator provides. Regardless of the assets under management, you will need to hire an auditor for the fund. If you operate an offshore fund, you will need an administrator. However, the jury is still out on whether you need to have an administrator for an onshore fund immediately. The current industry trend is that onshore funds are using administrators. As discussed in Chapter 5, this is directly related to a change in the makeup ...