Insight by Andrew Miller, Partner at Landing Point
In the rapidly evolving landscape of private equity and credit funds, a new and specialized accounting need is emerging: GP Accounting. As fund structures become increasingly complex, mid to large private equity and credit funds are facing heightened challenges in managing their General Partner (GP) accounting. This has brought on a growing demand for GP Accounting specialists, a niche that many CFOs are seeking but are struggling to find.
What is GP Accounting?
GP Accounting refers to the specialized financial management of the General Partner entities within a fund structure. It encompasses managing the financial statements, cash flows, and partner capital accounts, while also handling the intricate allocation of carried interest, management fees, and other GP-specific expenses. Unlike traditional fund accounting, which focuses on portfolio and investor-related reporting, GP Accounting requires an in-depth understanding of the partnership’s unique financial obligations, incentives, and regulatory considerations. In addition, much of this information and accompanying support can be highly sensitive in nature. For many CFOs, they typically want to handle this information themselves and are dealing with the GP constituents directly. With the rise of GP Stakes and firms looking to raise outside capital through GP Stakes, the information and necessary support work has become too burdensome for many.
Why is the Demand Growing?
Increased GP complexity driven by capital infusion:
With mid-to-large private equity and credit funds managing multiple funds and co-investment vehicles, the GP structure has become more sophisticated. It is becoming increasingly common for firms to seek capital injection into the General Partner (GP) to support the firm’s growth and expansion into new strategies. This trend is driven by the need for firms to enhance operational capabilities, diversify their investment offerings, and meet the demands of a rapidly evolving market. By raising capital at the GP level, firms can strengthen their infrastructure, attract top-tier talent, and pursue new opportunities without relying solely on fund-level investments.
The rise of GP stakes strategies:
The growing popularity of GP stakes strategies is directly fueling the increased demand for specialized GP Accounting professionals. These strategies—where investors acquire ownership in the General Partner firms themselves rather than their funds—introduce significant financial complexity. This includes intricate entity structures, sophisticated revenue recognition for management fees and carried interest, and nuanced valuation methodologies. As a result, firms must deliver more transparent disclosures to both limited partners and GP stakes investors, alongside stricter regulatory compliance. The capital infusion from GP stakes also enables firms to expand, launch new funds, and diversify, leading to even greater volume and complexity in their financial operations. Ultimately, this creates a critical need for accounting professionals with a specialized understanding of GP Accounting.
Expansion into new investment strategies:
Many large funds are expanding into new verticals such as real estate, infrastructure, and venture capital. These new strategies often come with new share classes in the GP and additional partners brought in to lead these segments. This diversification adds layers of complexity to the accounting and reporting requirements—requiring deeper expertise in different asset classes and how they impact the GP-level structure.
How to Navigate the GP Accounting Talent Shortage
We’ve spoken with so many CFOs that are wrestling with their need for specialized GP Accountants. Quite frankly, it’s still such a nascent area that there are not enough accounting professionals with direct experience in GP accounting. Finding talent with a blend of technical accounting skills, a deep understanding of fund structures, and the ability to manage partner-level financials is no easy task and is also a relatively new challenge given the unparalleled complexity GP stakes are adding for internal finance teams. With that in mind, we often advise clients on implementing the following tactics to address the gap:
- Internal development programs: Invest in training your fund accounting or finance teams in GP Accounting principles. A cross-training program can help build this skill set internally, giving teams a clearer understanding of the GP structure. By assigning key team members to take on more GP-related work, you not only enhance their expertise but also increase operational efficiency, supporting the firm’s growth into new strategies.
- Leverage external expertise: Consider leveraging highly skilled consulting talent with GP Accounting expertise to help bridge the gap while building out a permanent team. This can be an effective way to establish best practices and train internal teams on the nuances of GP-level financial management. CFOs can find this through use of consulting firms, fund administrators or individual experienced professionals who have seen firms scale to have a dedicated GP professional.
- Broaden the Search Criteria: This one is critical given the current talent shortage. Instead of focusing solely on professionals with direct GP Accounting experience, consider candidates with a strong background in fund accounting, public accounting, or complex partnership structures. If they’re a “high potential” professional and are given the right support and training, they can transition into the role.
Looking Ahead
As private equity and credit funds continue to grow and evolve, the demand for GP Accounting specialists will only increase over the next 5-10 years. CFOs who can get ahead of this trend by investing in the right talent and building strong GP Accounting functionality within their teams will be well-positioned to navigate the complexities of today’s fund structures and deliver enhanced value to their stakeholders.