Break the Burden of Shadow Accounting

As private markets evolve, the sheer volume and complexity of data that general partners (GPs) manage has grown exponentially. With multiple fund administrators, disparate systems, and increasing regulatory demands, GPs often struggle to maintain a clear, accurate picture of their portfolio and fund performance. The stakes are high – GPs must ensure data accuracy and consistency not only for their own internal decision-making but also to meet the rising expectations of investors and regulators.

To manage this complexity, many GPs have turned to shadow accounting – creating parallel records to verify the data provided by fund administrators, allowing GPs to maintain a semblance of control over their financial records. However, what started as a short-term fix has become an unsustainable long-term burden. Shadow accounting is resource-intensive, error-prone, and ultimately a significant drain on both time and operational efficiency.

The good news? There is a better way. Fund admin oversight is emerging as a modern solution that allows GPs to automate data validation and reconciliation, eliminating the need for manual shadow accounting. With the right tools and technology, GPs can ensure their data is accurate, consistent, and trusted while freeing up resources for higher-value activities like driving performance and improving investor relations.

This whitepaper explores the hidden costs of shadow accounting, the benefits of admin oversight, and how GPs can leverage technology – like Lantern – to take control of their data and future-proof their operations. By moving beyond manual processes, GPs can achieve a new level of efficiency, transparency, and accuracy, positioning themselves to thrive in an increasingly data-driven environment.

As private market portfolios grow in size and complexity, general partners (GPs) are increasingly relying on shadow accounting to manage and reconcile data from multiple fund administrators. While this practice provides GPs with a level of control over their data, it comes with significant costs—both visible and hidden—that impact the operational efficiency and strategic focus of the firm.

• Operational Burden – Shadow accounting is a highly manual process that requires GPs to reconcile data from multiple systems and administrators, often using spreadsheets and parallel records. This process is resource-intensive, diverting valuable time and personnel away from higher-value tasks such as analysing portfolio performance, investor relations, and strategy development. GPs are forced to dedicate entire teams to data management, spending countless hours on tasks that could otherwise be automated. This manual work not only consumes valuable human capital but also slows down decision-making processes, as teams wait for data to be fully reconciled before making critical investment or operational decisions. Over time, shadow accounting becomes a long-term operational burden, adding layers of inefficiency to a firm’s internal processes.
• Risk of errors – One of the most significant risks of shadow accounting is the potential for human error. Manually reconciling data from multiple administrators leaves GPs vulnerable to discrepancies in the numbers. Small errors in data entry or misinterpretations of reports can have a compounding effect, leading to inaccurate financial records, misinformed decisions, and the need for further reconciliation down the line.The complexity of private market data only increases the likelihood of such errors. Administrators often provide data in inconsistent formats, further complicating the reconciliation process. This forces GPs to not only spend time checking the data but also standardising it before it can be used for reporting or analysis. A single mistake can lead to a cascade of issues, from incorrect portfolio valuations to misreporting to investors.
• Lack of Transparency – Another hidden cost of shadow accounting is the lack of transparency it introduces into a GP’s operations. Because data is being reconciled manually across disparate systems, it is often difficult to track where errors originate or to understand the full lifecycle of a particular data point. This lack of visibility creates challenges for GPs who need to ensure that their entire firm—across finance, investment, and operations teams—is working from the same set of accurate data.When different teams are working with different versions of the data, it becomes harder to align on key business decisions. This misalignment creates friction, not just internally but also externally, as inconsistent data trickles down to investors, potentially leading to a loss of trust.
• Compliance and Regulatory Risks – Private market GPs are under growing regulatory scrutiny, with compliance becoming an ever more complex and critical part of their operations. Manual shadow accounting processes exacerbate these challenges. Ensuring compliance with evolving regulatory standards requires real-time access to accurate, validated data, something that shadow accounting struggles to provide.The more data that needs to be manually reconciled and cross-checked, the more likely it is that something will be missed—whether it’s a regulatory report that doesn’t reconcile correctly or a financial discrepancy that goes unaddressed. This creates significant risk for GPs, as regulatory bodies expect complete transparency and accuracy in all reporting.
• Investor Expectations – Finally, investors are raising the bar for transparency and accuracy in private markets. They no longer simply want to see returns; they want to understand the data behind those returns. Investors are asking for more detailed reporting, more frequent updates, and greater insights into how their capital is being managed.When shadow accounting is involved, GPs struggle to meet these heightened expectations. The manual processes behind shadow accounting make it difficult to provide the level of real-time, accurate data that investors now demand. As a result, GPs risk damaging their relationships with investors by providing delayed or inconsistent reports that undermine their credibility.

The hidden costs of shadow accounting are substantial. From the operational burden of manual data reconciliation to the risks of human error, compliance challenges, and investor pressures, shadow accounting is no longer a sustainable solution for modern GPs. It introduces inefficiencies at every level of the organisation, ultimately hindering the firm’s ability to focus on strategic decision-making and growth. The next step for GPs is to move beyond shadow accounting and embrace automated, assured data solutions that can provide both control and confidence in their data.