Fund formation and first-time fund managers
How do I choose an auditor for my fund?
Short answer
Choose an auditor that already audits funds like yours, is independent from your team and your administrator, and can finish on a timeline your investors accept. Ask for fund references, compare fees and scope in writing, and review what your documents say. I treat the auditor as part of the due diligence package investors will review, so check the details with securities counsel.
Start with fund experience, not the lowest fee
I would first ask whether the firm already audits funds in your strategy. A firm that mostly audits operating companies may be less familiar with valuing fund investments, capital accounts and how profit is split between the manager and the investors. Ask for the names of a few fund clients and ask how many funds like yours they handle each year.
Investors notice this. In a panel on raising capital, one founder described an online platform that only lists real estate private equity funds. He said every fund on it has an auditor and an administrator, and that the platform also has a third-party due diligence report. That tells me where the bar sits for serious investors.
This panel clip shows how one platform screens funds, and it names an auditor and an administrator as basics.
Summary and key takeaways from this video
"We only focus on real estate private equity funds. Every fund has an auditor and an administrator."
Questions I would ask every candidate
- Which funds in my strategy and size do you audit today, and can I speak with one of them?
- Are you independent from my team, my administrator and my law firm?
- What is the scope and fee in writing, and what causes the fee to change?
- How long after year end do you deliver, and does that fit what my investors and documents expect?
- Who does the work day to day, and will that person stay on my file?
Independence matters. The auditor should be separate from the people who prepare your numbers. Your administrator keeps the books and the auditor checks them. If one firm tries to do both jobs, I would ask hard questions about why.
Match the choice to your rules and your investors
Many sponsors talk to a securities attorney about whether an audit fits their situation and how quickly it should reach investors. I am not a lawyer, so this is general business advice only. Timing after year end is a real question to raise with any auditor you are considering.
Also think about who your investors are. Institutional investors, and the investment consultants who advise them, often review the whole service provider team. A familiar name may shorten that conversation, and an unfamiliar one may lead to more questions.
Make the auditor part of your due diligence file
I tell managers to be ready before the question is asked. In one workshop I talked about preparing thoroughly for due diligence and handing investors a worksheet with answers to the questions they will ask. In my experience, many managers take a month to reply to a list like that. If your auditor, administrator and counsel are already listed with contact details, you are ahead.
Here I explain why having due diligence answers ready can set you apart from managers who reply slowly.
Summary and key takeaways from this video
So pick the firm with real fund experience, clear independence, a written scope and a timeline that works. Then put the details in the data room before an investor has to ask.
From the source
- One platform founder on a capital raising panel said every fund listed on his site has an auditor and an administrator.
- The same platform pairs each real estate private equity fund with a third-party due diligence report for accredited investors.
- Richard suggests giving investors a due diligence worksheet with answers to 30 questions, and notes that many managers take a month to reply to such a list.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Success Raising Capital Stories from Teams Who Have Raised $50 Million, The #1 Strategy to Attract Investors Due Diligence Advantage | Capital Raising Workshop. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around audit requirements, offering documents and manager registration status. Do not use AI to write your own legal agreements.
Your next steps
- 1List three to five audit firms that already work with funds in your strategy.
- 2Ask each for fund references, a written scope, a fee quote and a delivery timeline.
- 3Confirm independence from your administrator and the people preparing your numbers.
- 4Review your offering documents and talk to a securities attorney about audit terms.
- 5Add the auditor, administrator and counsel to your due diligence file.
Follow-up questions
Do I need both an auditor and an administrator?
Many institutional investors expect both, and the panel clip describes a platform where every fund has both. Many sponsors talk to a securities attorney about which providers make sense for their structure.
Should I pick a big name auditor?
A recognized name can help with institutional investors, but fund experience and fit matter more. Match the firm to your size, strategy and budget.
When should I choose my auditor?
Ideally before you launch or start raising. Investors often ask for the service provider team early, and I would have it ready in your due diligence file.
Related questions
- Why should the management company be separate from the fund?The two do different jobs, so many managers think about keeping them in different entities.
- How much should a GP commit to their own fund?There is no single number that fits every fund.
- How do I form a Delaware limited partnership for a fund?Many sponsors work with an attorney on the state filings and a limited partnership agreement.
- How do hurdle rates and catch-up work in a fund?A hurdle rate is the minimum return investors receive before the manager shares in profits.
Work through it with the dilution calculator. See all fund formation and first-time fund managers resources.