A set of Financial Statements is a fundamental part of any reporting package, demonstrating good financial control and giving an overview of the performance and financial position of the fund.
Such statements should be reported at the appropriate level (i.e. partnership/entity or whole fund) within the overall fund structure.
It would be typical for a manager to provide only annually a set of comprehensive financial statements that meet local regulatory requirements. However, abridged financial information will be more appropriate. This abridged financial information should be based on Fair Value but need not be in GAAP format/layout.
Reports to investors should normally include a set of abridged financial statements for the period in question with relevant comparatives:
- Statement of comprehensive income (total return statement);
- Statement of financial position (balance sheet);
- Cash flow statement;
- Summary of accounting and valuation policy.
The statements should be presented so as to allow the reader to distinguish between portfolio/investment-related matters (e.g. gross investment return) and those related to the fund structure (e.g. fees, carried interest, expenses etc.).
Additional possible disclosures
Ideally, the abridged financial statements should allow the investor to see aggregate performance both on a whole fund basis as well as at the level of the partnership/entity in which they are invested. This is to ensure that, when read in conjunction with the investor’s capital account, the investor can track information from the whole fund level down to their individual share of the fund.