Want to Raise Capital? Show Your Shadow Accounting Model.

Raising private capital today looks very different than it did 25 years ago. In the early 2000s, a manager with a strong track record and a good reputation could attract capital with a lean back office, sometimes just a single accountant working off spreadsheets. Investors put more weight on performance than on infrastructure.

Fast forward to today, and the landscape has changed. Limited partners (LPs) still care about performance, but they care just as much about operational credibility and transparency. Questions that once felt overly technical, like “Where’s your shadow model?”, are now standard due diligence. LPs want assurance that the fund’s financial statements and reporting are accurate and independently verifiable.

This shift has led fund managers to invest in stronger internal operations functions. Many institutional fund managers now have experienced teams dedicated to oversight, reconciliation, and process documentation. These teams perform shadow accounting to verify the fund administrator’s financial statements and calculations and that controls are in place to detect errors. As such, shadow accounting models have emerged as a new benchmark of institutional readiness.

What is Shadow Accounting?

At its core, shadow accounting means building an internal model that mirrors the fund administrator’s financials. The shadow model allows the fund manager to validate fund valuations, fee calculations, and investor statements, providing an additional layer of transparency.

Think of it as your parallel set of books. If your administrator shows $1.2M in accrued fees, your shadow model independently calculates the same number. That confirmation gives you confidence when an LP challenges your assumptions or digs into your financials mid-quarter.

Why Shadow Accounting Matters

1. Demonstrates credibility: LPs want to see that managers understand the numbers and aren’t simply accepting administrator reports at face value (i.e., management fee, accruals, NAV, carried interest). This becomes even more important when LPs ask questions mid-quarter or test assumptions during operational due diligence (ODD) reviews.
2. Catches discrepancies early: Even the best fund administrators make mistakes. A shadow model helps you spot them before they reach investors.
3. Accelerates due diligence: ODD teams often request detailed walkthroughs of fee and NAV calculations. With your own model, you can respond quickly and set the right tone.
4. Builds redundancy and controls: Validating administrator work strengthens your overall governance framework.

The Emerging Manager Gap

While established managers have the scale and resources to build an internal operations team, emerging fund managers face a unique challenge. They often operate with lean teams, limited budgets, and less institutional experience. However, emerging managers are expected to demonstrate the same level of operational rigor as larger, more established funds.

Investors don’t scale down their expectations just because you’re raising your first fund. LPs still expect institutional-grade controls, transparent reporting, and fast responses. For lean GP teams, that’s a heavy lift.

Outsourced CFO as the Solution

That’s where outsourced CFO support comes in. By plugging into an experienced partner, emerging managers can replicate institutional-grade oversight without the overhead of building a full internal ops team.

At Reliant Fund Services, we act as an extension of the GP. Our team:

• Reconciles administrator outputs against internal shadow models
• Designs and implements robust internal controls
• Produces accurate, LP-ready reporting across both fund and management company

This approach ensures managers can stand behind their numbers with confidence and meet the same operational bar as larger funds.

Operational Excellence as a Growth Engine

Strong performance alone isn’t enough anymore. Operational credibility has become a fundraising advantage. Managers who can show redundancy, transparency, and responsiveness stand out during diligence. Those who can’t risk losing commitments, regardless of performance.

Shadow accounting may have once been a “nice-to-have.” Today, it’s increasingly seen as a marker of institutional readiness. And for emerging managers, outsourcing this function makes it accessible on day one.

If you’re preparing to raise capital, don’t let operational credibility be an afterthought. LPs want assurance that your numbers are right, your processes are sound, and your controls match their expectations. Shadow models are no longer optional, they’re table stakes.

Reliant Fund Services helps both emerging and established managers implement shadow accounting, strengthen controls, and present financials with confidence. If you’d like to learn how we can help your team build credibility and speed up fundraising, let’s connect.