Shadow Accounting Infographic by Strata Fund Services LLC

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What is a Hedge Fund?

A hedge fund is considered an alternative private investment vehicle. It is available to accredited investors with a net worth of more than $1 million excluding the worth of their primary residence and qualified purchasers with more than $5 million in investments. Hedge funds are designed to protect portfolios from market uncertainties and are intended to be able to generate positive returns in both up and down markets.

Benefits of Investing in a Hedge Fund

Hedge funds offer three key benefits: diversification, downside protection and a focus on absolute return. Hedge Funds invest in a wide range of area, which makes the worth of the hedge fund less dependent on a particular asset class, such as the stock market. These funds are also designed to be less volatile than a typical long-only portfolio, and seek to make a return in all kinds of markets.

How Hedge Funds Work

A typical goal of a hedge fund is to increase the investors’ money at the highest rate possible while adjusting for risk. A hedge fund requires an initial investment to be made toward the fund. This initial investment is then invested in anything of value, such as bonds, stocks, collectibles, real estate, startups, mutual funds or gold.

After a year, the fund’s revenue is calculated by subtracting the initial investment from the total net worth of the fund. Based on the operating agreement of the fund, the profit is then divided up between the investors and the managers. Most managers have to pay what’s known as a hurdle rate up front to investors before making any money themselves. A typical rate is about 4 percent of the profits. After the hurdle rate is taken out, a large portion, such as 75 percent of the remaining profits, would be returned to the investors and a smaller portion, such as 25 percent, would be given to the managers.

Shadow Accounting

Shadow accounting is used by traders, hedge fund managers, fund-of-fund managers, pensions, endowment funds and corporations. Shadow accounting offers investors additional protection for their funds and is critical for detailing investment earnings. Shadow accounting also helps managers to keep accurate records of the trades executed and valued, have an accurate calculation of the reported results and gives them the ability to evaluate the reported results of underlying managers in a fund of hedge funds.

84 percent of hedge fund managers use shadow accounting for the administrator who provides the Net Asset Value for the fund. 65 percent of managers say the primary reason to use shadow accounting is to provide a back-up that mitigates the risk of error in the fund’s finances. 76 percent of investors say it is important for hedge fund managers to maintain shadow accounting.

Variables Tracked in Shadow Accounting

The most common variables tracked include the following:

  • Calculation of NAV
  • Investment Valuation no-OTC
  • Trade Processing
  • Investment Valuation OTC
  • Trade Reconciliation
  • Cash Reconciliation
  • P&L Production and Allocation
  • Cash/Collateral Management
  • Risk Reporting
  • Partner/Shareholder Activity
  • Investor Reporting

Strata Fund Services Chooses Penny

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Strata Fund Services

a growing fund administrator, announced on October 02, 2012 that it had adopted TKS Solutions’ Penny – It Works system for back office accounting.

Strata Fund Services provides high-quality administration services to the alternative investment industry. With a deep and broad base of expertise in administration, tax, audit, and consulting services, Strata services some of the most complex hedge funds, private equity funds, fund of hedge funds, fund of private equity funds, registered funds, offshore funds and managed account.

TKS Solutions offers a unified partnership and shareholder accounting solution for the financial industry. Its flagship software, Penny- It Works, is used to manage upwards of 600 onshore and offshore funds by providing automated and instant access to detailed investor data, performance, fees, and transactions

Four Steps to Build an Investment Portfolio

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Investments are a great way to build a retirement fund, pay for college tuition and improve your financial situation. Building a successful investment portfolio requires knowing what types of investments to make and how much for your particular situation and Strata Fund Services, LLC knows how to do just that. All investments have the risk of losing money as well as gaining it, so when creating a portfolio it’s important to think about the following steps.

 

  1. Determine Appropriate Assets

 

The first step is to look at your individual financial situation and goals and determine which kind of investments would be right for you. This will depend on your age, time to grow investments, future capital needs and how much money you have to invest. Your personality is also an important factor. If you have a low risk-tolerance you will have a different portfolio than someone with a higher risk tolerance.

A conservative portfolio for those with low-risk tolerance will generally consist of 70 to 75 percent fixed income securities, 15 to 20 percent equities and 5 to 15 percent cash. This type of portfolio will protect the worth of the portfolio and leaves some potential for long-term growth.

For a moderately aggressive investor a portfolio will generally consist of 50 to 55 percent equities, 35 to 40 percent fixed income securities and 5 to 10 percent cash. This portfolio strikes a balance of plenty of growth opportunities with a portion of it tucked away for income.

 

  1. Create the Portfolio

 

Once you have determined how to divide assets, it’s time to begin the investment process. This will require additional research and division of assets as all stocks, bonds and investment funds are different. Selecting stocks on your own requires determining risk level and consistently monitoring stock prices to determine when to buy and sell. This can be time consuming for the average investor and having an expert at a mutual fund do this for you is another viable option. When selecting a mutual fund be sure to consider the fee when determining profit potential.

 

  1. Assess Your Portfolio

 

Once you have a portfolio established for a while, you will need to go in and rebalance it every once in a while as market movements cause investments to change. You may also need to adjust your portfolio to changing financial needs or risk tolerance levels.

 

  1. Re-balance Strategically

 

Once you’ve determine the types of changes you need to make to your portfolio, make sure those changes are done strategically by purchasing new investments with the proceeds of the old ones. Always consider any taxation implications when making changes as well.

Strata Fund Services LLC on Derivsource.com

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HedgeOp Enters Alliance with Strata Fund Services, LLC to Provide Compliance Solution. Hedgeop offers specialized compliance software and consulting services for alternative asset managers. Strata Fund Services now uses the software to serve its clients and enhance their compliance offerings. The software is called ComplianceTrak.

We were looking for an efficient and cost effective way to enhance our compliance offerings to asset managers, and increase the number of clients we can service. ComplianceTrak, with its patented automated technology, will allow us to undertake, on a large scale, the reporting, monitoring and tracking functions that our clients need to demonstrate compliance. — Sam Seaman, executive director at Strata.

Strata Fund Services LLC on LinkedIn.com

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Strata Fund Services LLC is a full service administrative firm providing high-quality administration and consulting services to the alternative investments industry. On the Linkedin.com profile, they share job postings and helpful information. If you’re looking for a job with a great company, Strata Fund Services LLC is the best career choice.

Stay up-to-date with Strata Fund Services job postings and more on Linkedin.com

 

5 Tips to Selecting the Right Auditor

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All publicly traded companies are required to be audited. With stories like what happened with Enron and the financial fraud conducted by the accounting firm, Arthur Andersen, businesses and stockholders are wary of accounting fraud. With so much mistrust, it’s important to select the right auditor for your business, so you will know that your company is acting within the law and that you can trust the auditor to follow the rules. When selecting an auditing service, here are some things to consider.

How to Select the Right Auditor

1. Cost

Cost is always a big concern for a business. If you are a small business, you will probably want to go with a cheaper service than what is offered by the high-end companies. However, keep in mind that in order to make a public offering on your company or to sell your company, investors will want a good guarantee on your financial statements. If you know that you will be doing these things soon, it may be worth the money to hire a high-end firm.

2. Due Diligence

If your financial statements are ever questioned by a third party, you will want to have an auditing firm that will stand by its statements and you. As you go to meet with an auditor, discuss their policy on handling due diligence. If an auditor is unwilling to stand by his or her work, you will probably want to look elsewhere.

3. Interest

Another thing that’s important to think about is how interested the auditing firm will be in your company. Often using an auditing firm from out of state can cause problems because your company will get put on the back burner, and you will end up scrambling just to get the audit completed.

4. Relationship Level

Are you able to establish a relationship with the audit partner? Having a close enough relationship where you are able to discuss issues with the partner about your company will be an important part of the auditing process. In addition, the workers will often take direction from the auditing partner about how to treat you and your business. If you are uncomfortable with the audit partner or are unable to communicate openly consider looking at a different firm.

5. Compare

It’s important to compare the options you have before selecting an auditing firm. If you are consistently switching between firms, it can look like you are looking for a better opinion on your financial statements. Instead, gather as much information you can, so you can make a single informed decision.

4 Tips to Reduce Estate Taxes

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Estate taxes are rarely understood or discussed because it is a tax that doesn’t affect everyone and is only implemented at certain times. However, those who have made a significant amount of money through investments or selling a business should understand the implications of the estate tax, and how to minimize the amount of taxes owed.

In general, estate taxes are determined by calculating the net worth of the estate once all debts are paid off. The amount of money the estate needs to be worth to pay taxes depends on the federal or state law at the time. This can change dramatically from year to year. In order to minimize tax payments, follow the tips below.

1. Remove Life Insurance from the Estate

Life insurance policies are included in the taxable estate if the policy is still in the name of the deceased at time of death. This can lead to more than half of the insurance money going to the IRS instead of the intended beneficiary. Creating an insurance trust is a way to avoid this scenario and keep the life insurance separate from the estate.

2.Give Money Away

This sounds like a funny way to save money, but giving a portion of the estate under the amount allowed by law to your intended beneficiary is a way to lower the value of your estate and hence lower taxes owed. Giving away this kind of money is of course heavily regulated and it is recommended that you consult a financial professional with experience in this area before giving money away.

3. Leave Part of the Estate to Charity

Contributing a portion of the estate to charities on your passing can result in a hefty deduction in taxes owed. Of course, that will mean leaving less money to your other beneficiaries overall, but you will know that the money is going to a cause of your choosing rather than to the IRS.

4. Utilize the Federal and State Exemption

The IRS allows every individual to make a single lifetime exemption amount, which excludes that amount from being included in the estate for taxation purposes. However, that exemption is removed if one spouse dies and leaves the money to the other spouse. This can be avoided by instead leaving the money to a trust that the spouse controls. These trusts are known as exemptions trusts, and no tax will be owed up to the exempted amount.

This article was written by Andrea Lewis, who often writes for Strata Fund Services. She likes to write about money topics.