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Why Reconciliation Can Make or Break the Due Diligence Process

In an increasingly competitive environment, investors are using due diligence processes to assess the transparency and efficiency of fund reconciliations.

As funds move into new asset classes and adopt new strategies, investors are demanding more transparency around cash, valuations, and performance.

They want to be sure that the managers they work with are fastidious in their demand for accuracy and that their investments are being treated with care and attention to detail.

For this reason, operational due diligence can be make it or break it when it comes to the allocation process. Limited partners (LPs) are looking into fund operations in ever-increasing detail. One of the areas attracting a lot of their attention is reconciliations.

An integrated and efficient reconciliation process is viewed by LPs as a huge positive because it suggests a commitment to accuracy and accountability at the foundational level of fund accounting.

Reconciliation has always been important, but as our new report on Integrated Reconciliation shows, it’s rapidly becoming a key differentiator in a competitive fund management market.

Fund due diligence grows in scope and detail

As the market shifts to more complex asset classes and strategies, and the structures that house them become more labyrinthine, investors are prioritizing transparency.

They want reassurance that fund managers are accurately valuing private market assets, for which publicly available information is often thin. They also want to know that fund reconciliation teams are precisely tracking cashflows through complex structures.

Regardless of asset class, the trend is toward more investor reporting, as LPs seek reassurance for their underlying investor base. They want to know about asset performance and portfolio position, but also to understand the fees being paid to managers and the payments made to vendors.

To ensure that this level of reporting is available, LPs will use due diligence to ask whether funds have the technology, people, and processes in place to meet these growing demands.  

The due diligence process in reconciliations

What does that mean for reconciliation teams? The speed and accuracy of reconciliations determine how efficiently and effectively funds can operate. Reconciliation departments that can show both of these traits during a due diligence review will create a compelling case for the fund.

LPs and fund managers want to see complete audit trails. They want to see that every transaction has supporting documentation and that every cash movement can be justified. They want to be sure that an external auditor will not find irregularities in payments that might lead to reputational damage by association.

Large cash movements without proper documentation are a big red flag. So is a lack of timeliness in reconciliation reporting. Investors are increasingly looking for near real-time data, even in private markets. During due diligence, they’ll be looking to see whether funds have the systems and processes in place to provide fast and accurate updates on a range of reconciliations.

Their investigations will certainly include relevant technology, but there’s a large human element to reconciliations that can’t be ignored. Getting to the source of errors takes experience and expertise, and LPs will want to see how exceptions are handled and how quickly breaks are resolved.

The benefits of integrated reconciliation

Red flags are incomplete audit trails, undocumented transactions, and inefficient operations. What LP’s are looking for is an integrated, rule-based reconciliation process.

If fund managers can handle the full spectrum of reconciliations quickly and accurately—from positions, cash balances, and transactions, to net asset value and profit and loss—it shows investors that they know exactly where the fund stands at any given point. Automating relevant processes demonstrates efficiency and gives reconciliation teams more time to investigate breaks.

In an increasingly complex market, reconciliation is becoming a major point of differentiation between funds. At a fundamental level, advanced reconciliation processes reassure investors that their money will be looked after.

Why CSC?

  • CSC provides tailored administration and strategic outsourcing solutions to alternative asset managers across jurisdictions and asset types, while adhering to global regulations and compliance.
  • Privately held since 1899, CSC is a global company with capabilities in more than 140 jurisdictions. We are the business behind business®.
  •  Download our Integrated Reconciliation report now.

CSC provides tailored administration and strategic outsourcing solutions to support the complex operations of alternative asset managers across jurisdictions and asset types while adhering to global regulations and compliance. A market leader working with funds of all sizes, we’re the trusted partner of choice for 90% of the Fortune 500® and 70% of the PEI 300. Privately held since 1899, CSC is a global company with capabilities in more than 140 jurisdictions. We’re capable of doing business wherever our clients are by employing experts in every business we serve. We are the business behind business®. Learn more at