Expense allocation has become an important operational challenge for alternative investment funds. As the industry grows, fund managers face pressure from regulatory bodies like the U.S. SEC to ensure processes are transparent, compliant, and efficient. Fund managers need to leverage digitization to combat challenges while preserving maximum efficiency and accuracy.
Expense allocation for alternative investment funds is becoming more complex. The Alternative Investment Management Association has described it as one of the most discussed and examined topics in the alternative investment industry.
With increased scrutiny from regulators such as the U.S. Securities and Exchange Commission (SEC) and heightened expectations from investors, fund managers must ensure their expense allocation processes are accurate, fair, and transparent.
CSC recently delved into this issue with a webinar, Optimizing Private Capital Expense Allocation for Efficiency and Compliance. The expert-led discussion offered actionable insights to help fund managers tackle challenges effectively.
What challenges do fund managers face with expense allocation?
Fund managers must demonstrate that their fund expenses are reasonable and justified while navigating the operational challenge of maintaining efficiency. For instance, the SEC specifically called out the “accuracy of calculations and allocations of private fund fees and expenses (both fund-level and investment-level)” as a 2025 examination priority.[1]
As we discussed in the webinar, for those still relying on manual processes like spreadsheets and email-based approvals, there are risks, including:
- Inefficiency and delays
- Higher susceptibility to human error
- Potential non-compliance risks
- Investor dissatisfaction
- Distractions from core investment activities
As funds expand across geographies and jurisdictions, expense allocation can become more demanding, covering accounts payable, cost-sharing arrangements, cross-entity accounting, and vendor management. Managers must also ensure compliance with regulatory standards and fund policies while meeting demands for transparency and detailed audit trails.
Modernizing by using technology-enabled solutions is essential to overcome these challenges and stay competitive in an increasingly complex environment.
How can digitization solve these issues?
Digitization offers a transformative solution to the challenges of expense allocation by replacing manual workflows with streamlined, automated processes.
With the right technology, fund managers can achieve centralized workflows that provide consistency and efficiency, built-in compliance mechanisms that align with regulatory standards, enhanced transparency, and auditability to meet investor and regulator demands.
Key features of a digitalized expense allocation system include:
- Centralized workflows―replace fragmented processes with a single platform for capturing invoices, categorizing expenses, applying allocation rules, processing reimbursements, and integrating with general ledgers to deliver consistency and accuracy across transactions.
- Rule-based templates–automate expense allocation using pre-defined rules aligned with regulatory requirements and fund policies, reducing approval times and minimizing errors.
- Transparent audit trails–deliver complete oversight of every transaction, approval, and supporting document to satisfy regulatory audits with ease.
- Scalability–adapt to growing fund structures and increased transaction volumes while supporting complex allocation methodologies.
By embracing digitization, fund managers can not only address current challenges but also position themselves for future growth.
What are the best practices for implementing digitization?
Successfully digitizing expense allocation requires adherence to key best practices. We believe that fund managers should focus on the following:
- Digitize invoices and data–Capture invoices digitally, with added relevant data for downstream processes, without reliance on paper and PDFs.
- Establish a rule-based template–Build and automate allocation rules to ensure consistent compliance with fund policies and regulations.
- Define and automate workflows–Tailor workflows to each fund and integrate system controls for approvals and audit trails.
- Integrate systems–Connect the digitized solution with general ledgers, payment systems, and reporting tools for seamless operations.
- Review and update–Perform frequent reiterative reviews of the system to ensure it meets evolving regulatory requirements and organizational needs.
Partnering with an expert provider can simplify this process and provide a smooth transition, allowing fund managers to focus on their primary goal: investment strategy execution.
What does the future of expense allocation look like?
The future of expense allocation is digital, yet many fund managers don’t have the in-house resources and capabilities to devise and implement such systems themselves.
Specialist partners provide cutting-edge industry solutions, support compliance with evolving regulations, and take back-office burdens off fund managers, allowing them to focus on core investment strategies. Watch our latest webinar, Optimizing Private Capital Expense Allocation for Efficiency and Compliance to learn more.
[1] https://www.sec.gov/files/2025-exam-priorities.pdf
