How to choose fund accounting software for complex fund structures

Summary

Choosing fund accounting software is harder for private markets than for corporate finance, because the structures are harder: multi-tier ownership, blockers, carry vehicles, parallel funds, and hybrid open and closed-ended entities. Generic accounting criteria miss what breaks. The criteria that decide it are waterfall and fee automation, a core accounting engine that strikes a defensible NAV, configurability without vendor code, a real audit trail and controls, reporting and investor management, integrations and data ownership, security and hosting, scalability and asset-class fit, and implementation alongside the strength of the vendor itself. This guide sets out each one, the question to ask a vendor, and the red flags that mark a system built for simpler funds.

On this page

• Why complex fund structures change the buying decision
• The evaluation framework
• Evaluation criteria at a glance
• Questions to ask vendors
• Red flags
• Making the decision
• Frequently asked questions

A private markets fund is not a company with investors. It is a stack of entities. A single strategy can run through a master and its feeders, blocker corporations for tax, parallel vehicles for different investor classes, co-investment entities, SPVs, and a carry vehicle for the GP. Each layer carries its own ownership math and its own reporting obligations. Corporate accounting software treats these as edge cases. In private markets they are the base case. For a grounding in what fund accounting involves in private markets, start with our explainer.

That is why generic evaluation criteria fail here. Whether a system does double-entry or produces a clean profit and loss tells you nothing about whether it can carry an eight-tier waterfall, restate a blocker without a spreadsheet, or explain a NAV to an auditor line by line. The cost of getting it wrong is not a slow month-end. It is a NAV the GP cannot fully stand behind, and an audit trail that cannot explain itself.

Historically legacy systems have ensured the hardest processes often don't live in the system at all. Waterfalls and bespoke fund structures get pushed offline into spreadsheets and manual workarounds, bolted onto legacy platforms that were never built to hold them. That is not the exception. It is how most private markets back offices run day to day, and PwC's analysis backs the scale of it: firms operate with very lean teams and much of the back-office work still handled through largely manual systems. The lesson for a buyer is direct: evaluate for the hardest structure you run, not the average one. A platform that handles your simplest fund tells you nothing. A platform that handles your worst one tells you everything.

1. Waterfall, carry and fee automation

This is where fund accounting software is made or broken. Distribution logic is defined per LPA: European or American, preferred return, catch-up, tiered carry, clawback, plus management fees with offsets and rebates, and equalisation across multiple closes. Most systems hard-code a few templates or push the calculation into a spreadsheet the vendor never has to stand behind. The sharper test is whether your own team can build and change that logic inside the system, fully audited, without waiting on vendor code. LemonEdge's Embedded Waterfall applies LPA-specific rules inside the platform and shows every step, so the carry number is auditable rather than asserted. If the waterfall lives in Excel, so does your risk. For the mechanics, see how to automate waterfall distributions.

2. The accounting engine: multi-entity, multi-currency and one NAV

Underneath the headline features sits the engine. It has to maintain event-driven double-entry across multi-tier structures, in multiple currencies, with parallel ledgers so local GAAP and IFRS come from a single set of transactions rather than a bolt-on second system. The real test is the NAV. Can the platform strike it across the whole structure from that one set of transactions, with intercompany eliminations handled natively? A NAV assembled from spreadsheets and re-keyed balances is a NAV nobody can fully defend. Ask to see yours struck end to end inside the system.

3. Configurability and extensibility without vendor code

This is the difference between a truly modern platform you own and a legacy platform with functionality bolted on. Private markets terms are bespoke and they change, so the system has to let your own team add fields, entities, tagging and calculation logic through configuration, not a vendor development ticket. Ask whether the data model is open and documented, or whether it hides in vendor-only structures you cannot see or extend. A closed platform turns every future need into a change request with a price and a queue.

4. Audit trail and controls

Every number should trace to its source through a complete, immutable, as-of audit trail that covers calculations and master data, not just transactions. In private markets the audit trail is how trust in the NAV is defended to auditors and LPs. Pair it with real controls: role-based access, segregation of duties, and four-eyes approval on the entries that matter. Ask whether the trail captures the logic behind a figure as well as the figure, and whether you can reconstruct any number as of any date. Weak controls are the quiet reason restatements take weeks instead of hours.

5. Reporting, performance and investor management

Reporting is where the data meets the LP. The platform should produce push-button financials and standard performance metrics, including IRR, TVPI, DPI and MOIC, from the same source of truth, alongside each LP's required format. The ILPA Reporting Template v2.0, in effect from Q1 2026, raised the bar on fee and expense transparency and is increasingly expected in due diligence, so ask whether the system produces ILPA-aligned reporting without rekeying figures into a separate layer. The investor lifecycle sits here too: capital calls, distributions, investor notices and an LP portal. Reporting that has to be rebuilt by hand each quarter reintroduces the error the platform was meant to remove.

6. Integrations, API and data ownership

Fund accounting does not stand alone. It connects to CRM, fundraising, investor relations, banking and data warehouses, and every handoff between disconnected systems is a point where data gets rekeyed and reconciliations multiply. Ask what the API exposes for both read and write, whether you can run your own processes and reporting against your data, and, just as important, whether you can export and move your data if you leave. Data portability is the real test of who owns the data. A closed system becomes the bottleneck the moment you try to scale around it.

7. Security, hosting and data isolation

Security is now a buying criterion in its own right, and it reaches beyond your own walls. In the RSM and Private Equity International Private Funds CFO Insights 2025 survey, 72% of LPs had asked for more detail on IT systems and cybersecurity during due diligence in the previous 12 to 24 months, so the platform an administrator runs on is part of what its clients answer to their own investors. Look for encryption in transit and at rest, SSO and MFA, and evidence rather than assertion, meaning SOC reporting and penetration testing. Ask how the software is deployed and how client data is separated. LemonEdge is delivered as SaaS, with an optional self-hosted installation in your own secure cloud where data residency requires it, and keeps each client separated with its own permissions and time-stamped audit trail.

8. Scalability and asset-class fit

The platform has to fit the funds you run now and the ones you will run next. For a fund administrator that means fund administration software that holds many clients at once, each kept separate, without a new system per client. For a GP it means absorbing new funds without a fresh implementation each time. Check the asset classes you actually need, whether private equity, real estate, infrastructure, credit or fund-of-funds, and ask what adding the next client, fund or asset class costs in time and people. Outsourcing is rising: in the RSM and PEI 2025 survey around 45% of finance leaders planned to increase how much investment accounting they outsource, so if a managed-service option matters to you, test it now. If the cost of the next client rises in step with the last, the platform defers the ceiling rather than removing it.

9. Implementation, migration and the vendor behind it

The best platform on paper is worthless if implementation stalls or the vendor cannot last the distance. Ask for a defined methodology with environments you control for testing and production, migration from your incumbent with staging, validation and reconciliation, and a timeline that is honest about the effort expected from your own team. Then look past the software to the vendor: a track record with firms like yours, client references you can actually call, financial stability, and a published roadmap shaped by client feedback. You are choosing a partner for years, not a licence for a quarter. Complexity does not have to mean a multi-year build. For one fund administrator, Alchelyst, a highly complex client build ran through testing in just six to eight weeks.

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Take this shortlist into demos and hold vendors to specifics rather than slideware:

• Build and change my actual waterfall, with my LPA terms, in the system. Can my team do it without your developers?
• Strike my NAV end to end, across every entity and currency, from one set of transactions.
• Show me an audited in-system calculation that would normally live in Excel.
• Show me the open data model, and how my team extends it without custom code.
• Show me the audit trail for a changed calculation, reconstructed as of a past date.
• Produce ILPA-aligned reporting and one of my LP's formats from the same data.
• Show me the API, and prove I can export and move my data if I leave.
• Evidence your security: SOC reporting, penetration testing, and how my data is separated and deployed.
• What does adding the next client, fund or asset class cost in time and people?
• Give me a reference at my level of complexity, and be honest about what my team will have to do.

Some signals reliably mark a system built for simpler funds. A closed or hidden data model you cannot see or extend. Calculations that require vendor code to change, so every LPA quirk becomes a ticket. Black-box waterfalls that produce a carry number without showing the working. A NAV assembled from spreadsheets rather than struck inside the system. Audit trails that log data changes but not calculation changes. Opaque pricing, or per-entity pricing that punishes exactly the complex structures you need to run. No client references at your level of complexity, and custom development promised with no timeline. Any one of these is a reason to dig harder. Two or more, at your complexity, is a reason to walk.

There is no single best platform, only the best fit for the funds you run. Weight the criteria to your situation. A fund administrator should weight scalability, data isolation, configurability and the audit trail most heavily. A GP running one complex strategy should weight waterfall automation, the NAV and the audit trail. Insist on transparent pricing and total cost of ownership, so the cheap licence does not become the expensive project. Decide the operating model too: insource, outsource, or the increasingly common co-sourced model where GP and administrator share one system. Then start on your hardest structure, not a clean sample, and take references from firms at your level of complexity. If AI is on your agenda, remember its value depends on the data beneath it: a clean, governed system of record is the precondition, not the feature list. The right platform is the one that makes your worst fund easy to explain.

How do I choose fund accounting software?

Start from the hardest structure you run, not the average one. Score vendors against what actually breaks in private markets: waterfall and fee automation, an engine that strikes a defensible NAV, configurability without vendor code, a real audit trail, reporting to standards like ILPA, and the strength of the vendor itself. Insist on seeing your own waterfall and your most complex structure run inside the system during the demo, and take references from firms as complex as yours.

What features matter most for complex fund structures?

Five carry the decision: waterfall and carried interest automation that applies your LPA terms and that your team can change without vendor code, an accounting engine that strikes a defensible NAV across the whole structure from one set of transactions, an open and extensible data model, a complete and immutable audit trail, and reporting that meets standards like ILPA v2.0 from a single source of truth. The rest matter, but these are where systems built for simpler funds fail first.

Can Excel handle fund accounting for private markets funds?

Up to a point. Excel is flexible and familiar, and most firms start there. It breaks as complexity and scale rise: waterfall logic becomes unauditable, version control fails, key-person risk grows, and the audit trail lives in one analyst's head. The point to move is when the numbers you sign off depend on a spreadsheet you cannot fully defend. The better platforms let you author those same calculations inside the system, fully audited, so you keep the flexibility without the risk.

How long does fund accounting software implementation take?

It depends on the complexity of your structures and the state of your data. Complexity does not have to mean a multi-year project. One fund administrator completed testing for a highly complex client build on LemonEdge in just eight weeks. Ask each vendor for a timeline against a structure like yours, an honest account of the effort expected from your team, and a reference who went through it.

Sources

• PwC, Next in private equity: trends shaping 2025 and beyond.
• RSM US and Private Equity International, Private Funds CFO Insights Survey 2025.
• Institutional Limited Partners Association, ILPA Reporting Template v2.0 (released January 2025).

See how LemonEdge handles complex structures, waterfalls and multi-client operations. Book a demo.

About the author

Gareth Hewitt is co-founder and Chief Innovation Officer of LemonEdge, the fund accounting and operations platform built for private markets. Gareth spent over 20 years in the industry, frustrated with no one truly delivering the solutions to the increasing complexity of private markets.