The rise of the “no shadow” model – why managers no longer need to duplicate

The alternative investment world has traditionally maintained internal “shadow accounting” functions to verify the work of third-party fund administrators, ensuring control, oversight, and accuracy, but as the industry evolves and technology improves, this once-standard model is facing scrutiny.

Shadow accounting has been a mainstay of the alternative investment universe for decades, but the wider use of outsourcing for private equity, private credit and hedge fund GP’s is changing the narrative.

Today, there are several key factors that are driving the shift towards a ‘no shadow model’ for GPs:

• Costs

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  • Asset managers are facing increased pressure from investors to deliver better returns amid rising operational costs and market challenges, compelling them to reassess their operational models. This often leads to exploring outsourcing solutions, technology adoption, and streamlining internal processes to reduce overheads while maintaining service quality.
  • The no-shadow model eliminates processes by treating the administrator’s data as the golden record. This streamlines workflows, reduces headcount and licensing costs, and removes the need for costly internal infrastructure.
  • A leaner operating model enables funds to scale more effectively, supporting growth ambitions without increasing operational overheads.
• Data Quality and Management

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  • Integrated data solutions support customized investor and fund reporting, portfolio analytics, risk reporting, and exposure analysis, empowering managers to maintain oversight and perform sophisticated analysis without duplicating administrators’ systems.
  • Enhanced workflow tools and dashboards replace manual oversight checklists, optimizing the oversight function and enabling exception-based processing and reporting.
• Technology

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  • Advances in technology mean administrators can now offer transparent, real-time reporting.
  • Administrators such as the Citco group of companies (Citco) have invested in talent, infrastructure, and technology to deliver robust controls and audit trails, meeting regulatory requirements and assisting with managers’ compliance needs.  
• Operations

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  • Managers can reallocate resources from manual reconciliation to higher-value activities such as investment management, analytics, and investor engagement.
  • The model also shortens close cycles, reduces bottlenecks, and allows internal teams to focus on strategic oversight rather than line-by-line reconciliations.
  • Flexible workflow tools and enhanced automation improve the visibility of the status of deliverables, making for easier analysis and a better user experience for managers.
  • By removing the burden of duplication, managers can focus on strategic functions, fund strategy, and investor communications, supporting future growth.

What’s emerging is a leaner, more scalable operating model that allows managers to focus internal resources on strategic functions such as investment management, analytics, and investor engagement.

The end of duplication - why the shift to no shadow is happening

At the heart of this evolution is a shift in mindset: control no longer requires duplication. The historical reliance on shadow accounting was rooted in a lack of trust or visibility into administrators processes and systems, but that is changing rapidly.

Having made significant investments in talent, infrastructure, and the technology to deliver the service managers require, cutting-edge administrators can now offer:

• Automated reconciliations;
• Transparent, real-time reporting; and
• Institutional-grade controls and auditability

These advances have not only improved accuracy but also provided managers with the confidence to transition away from the shadow model.

Making the Transition: What It Takes

Transitioning to a no shadow model is not an overnight change. It is crucial to start the journey with a partner that has the technology and know-how to facilitate the model.

The strategic shift requires alignment between a manager and their administrator, with successful transitions typically following a phased approach which includes:

• Strengthening the administrator relationship to build trust in reporting and controls;
• Integrating systems and data feeds so administrator outputs seamlessly support internal analytics and reporting
• embedding transparent, highly automated processes to validate the flow of information, enabling clients to have visibility, and enhancing the accuracy of data; and
• Defining oversight protocols that focus on exception-based reviews rather than full reprocessing 

While each manager’s journey is unique, the outcome is consistent: shorter close cycles, fewer bottlenecks, and leaner in-house teams focused on higher-value activities. The shift is especially visible in day-to-day operations, where internal teams move from line-by-line reconciliations to strategic oversight focusing on analysis, fund strategy, and investor communications.

The result is faster reporting to end investors, improved agility, and a more scalable operational framework to support managers’ future growth.