Blog

10 Mar 2020

Expense Allocation Software for Hedge Funds & Private Equity

Gary R Markham

Resolvr is a flat cost, expense allocation software for $1B AUM+ private equity and hedge funds

What is expense allocation? We’ll tackle that question this article, and how software should help. We might not be the right fit for sub-$1B AUM funds, but we can always point you in the right direction.

Expense Allocation Overview

Let’s face it.

Expense allocation is not an exhilarating subject, it doesn’t fill you with joy and adrenaline at the prospect of finally finding a way to become a part of the expense allocation revolution.

At least it shouldn’t if you’re conducting expense allocation / expense apportionment in a manner compliant with the Securities and Exchange Commission (“SEC”), the governing agency for securities in the U.S. If you’re not though, the SEC could come knocking.

The SEC’s enforcement division is focused on private equity/hedge funds for an obvious reason: they manage more than $70 trillion in assets for more than 30 million clients. What expense allocation for hedge funds and private equity lacks in excitement, it makes up for in importance…and it’s not always straight forward.

Expense Allocation Definition

Let’s first look at what expense allocation is (it’s also sometimes known as “expense apportionment”). Expense allocation, or apportionment, is the process of splitting expenses (in the form of invoices in most cases) across funds within a hedge fund or private equity fund, for example, so that each internal fund only pays its fair share of each expense the private equity or hedge fund incurs. This allocation process is intended to ensure that no one fund’s investor group is unfairly burdened with more than its fair share of costs related to the running of a private equity firm, hedge fund, fund of fund or others.

In February 2018, the SEC listed expense allocation as a compliance exam priority and reiterated the seriousness of this issue via a Risk Alert to all private advisers. For those who aren’t savvy to all of these regulations, private advisers are broadly defined as hedge funds and private equity funds, according to the SEC.Currently, private equity funds and hedge funds represent the vast majority of the enforcement targets of the agency, and one needs only simply Google “SEC expense misallocation” to see that enforcement in action, from KKR to Dyal Capital to Lightyear Capital and beyond:


Prior to 2010, the SEC allowed private advisers to be exempt from needing to worry about expense allocation. This exemption from SEC registration all changed with the Dodd-Frank Act in July 2010, which removed that exemption, and made these private equity and hedge funds subject to Rule 206(4)-7. That means that these funds must now have middle- and back-office teams that ensure all expenses are split in a way fair to LPs among the appropriate funds.

Typically these middle- and back-office finance teams will handle expense allocation manually with excel spreadsheets, and it’s not uncommon for the proper allocation of these expenses to change from month to month, depending on what type of invoices or costs a fund is incurring. To compound this nuance, private equity and hedge funds have deal-related expenses that are market dependent and different in their allocation rules.

Resolvr/Bilr

To tackle this issue, we built a dual-solution, Resolvr (expense allocation software) and Bilr (ebilling software), to address the problems of both digital invoicing and expense allocation. We can handle all sorts of invoices, but it’s worth noting we pride ourselves on those most complex, legal invoices. Something to point out in that vein, in February 2020, we were just announced as the exclusive partner of LEDES, the global ebilling standard. Around the same time, LawPay partnered with us too (LSG is our sister company).

We realized with these solutions that we had to solve the most commonly faced hassles in expense allocation and expense apportionment by hedge funds and private equity funds. By integrating with commonly used fund accounting and expense software (Geneva, HazelTree, QuickBooks, Concur etc.), Resolvr makes it easy for funds to get compliant expense allocation up and running in no time at all via simple web portal.

Say goodbye to spreadsheets!

Bilr works with a similar ethos of removing spreadsheets and improving interoperability, and it’s quite simply an invoicing tool for any and all vendors. Anyone who submits invoices to large clients should be using Bilr, or some sort of electronic invoicing format. This enables this expense to flow through the allocation process and any other related softwares, such as QuickBooks for accounting.

With $32B+ of AUA on the platform, we’re confident we can handle expenses for funds big and small with obvious benefits, and we’ve reduced invoice processing at our latest client from a week to ~30 minutes from 46 days previously.

To boot, we’ll offer a price beat guarantee for any funds in our sweet spot: $1B AUM+

Contact Information

If expense allocation software (or expense management software) could help your firm, get in touch with us or find out more:

Expense allocation software: Resolvr website

Legal billing software: Bilr website

Authored by:

Gary R Markham

Gary R Markham is co-founder and Chief Executive of aXpire fund solutions, which designs, develops and deploys an array of expense management tools. He is an author of many articles, regularly speaks at conferences, panels and symposiums, a Global Director of the Hedge Fund Association, a recent recipient of the Keys to the County of Miami Dade. Gary has over 20 years experience in FinTech, specializing in spend, expense management, vendor and allocation and apportionment software solutions.

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