Capital account statements are the backbone of investor reporting in private equity. While quarterly letters and financial statements provide narrative and fund-level context, the capital account statement is where LPs verify their individual economics. It’s the document they use to reconcile their books, validate performance, and assess the fund manager’s operational discipline.
This article breaks down the anatomy of a capital account statement, what LPs expect to see, and how fund managers can deliver reporting that builds trust and reduces friction.
What Is a Capital Account Statement?
A capital account statement is a personalized ledger for each limited partner. It tracks the LP’s journey through the fund, starting with their initial commitment and evolving through capital calls, distributions, income allocations, fees, and changes in ownership percentage.
It’s typically delivered quarterly and is often reviewed alongside the fund’s financial statements, investor letter, and waterfall.
Core Components LPs Expect
LPs expect capital account statements to be clear, complete, and consistent. The following components are considered standard:
Beginning Capital Balance - The LP’s ending balance from the prior period. This figure should match the previous statement exactly.
Capital Contributions - Amounts called during the period, including investment capital and management fees. LPs expect these to be broken out by purpose and date.
Distributions - Cash or securities returned to the LP. Gross and net amounts should be shown, with any tax withholdings or fees itemized.
Net Income / Loss Allocation - The LP’s share of fund-level income, expenses, and realized/unrealized gains or losses. This section should reflect the fund’s accounting method (e.g., GAAP, IFRS) and be consistent with the financials.
Fees & Expenses - Allocated management fees, fund expenses, and any other charges. LPs expect transparency here, especially around fees that impact net returns.
Ending Capital Balance - The LP’s net position at the end of the period. This should reconcile with the fund’s waterfall and financial statements.
Cumulative Totals - Many LPs prefer to see cumulative contributions and distributions since inception. This helps them track their net invested capital and total proceeds.
Ownership Percentage - The LP’s pro-rata share of the fund, which may change due to transfers, reallocations, or differential capital activity.
Additional Elements That Add Value
While the above components are standard, sophisticated LPs often look for additional context:
Transaction-Level Detail - A breakdown of contributions and distributions by deal or asset can help LPs understand performance drivers.
Footnotes and Explanations - Brief notes explaining unusual items (e.g., clawbacks, catch-up allocations, FX adjustments) reduce back-and-forth.
Waterfall Tie-Out - A reference to the fund’s waterfall model or a reconciliation to the financial statements builds confidence in the math.
Excel Versions - Editable formats allow LPs to run internal models and reconcile their records more efficiently.
Common LP Questions and Concerns
Even well-prepared statements can prompt questions. Here are some of the most frequent:
“Why doesn’t this match our internal records?” - LPs often reconcile capital account statements against their own systems. Even minor discrepancies can trigger follow-ups.
“Can you break out fees separately?” - Bundled reporting of fees and expenses may frustrate LPs. They want to see what they paid and why.
“Where’s the unrealized gain detail?” - LPs increasingly expect transparency into unrealized positions, especially in later fund years.
“Why did our ownership percentage change?” - Any change in pro-rata share should be explained, especially if transfers or reallocations occurred.
Best Practices for Fund Managers
To reduce friction and build trust, fund managers should:
Standardize Templates Across Funds - LPs appreciate consistency. A familiar format reduces confusion and speeds up review.
Ensure Reconciliation with Financials - Capital account statements should tie out to the fund’s financials and waterfall. Discrepancies erode confidence.
Include Clear Footnotes - Explanations of unusual items (e.g., clawbacks, FX adjustments, reclassifications) help LPs understand the story behind the numbers.
Offer Editable Formats - Providing Excel versions allows LPs to run their own models and reconcile data more easily.
Respond Promptly to Inquiries - LPs often operate on tight reporting deadlines. Timely responses build credibility and strengthen relationships.
Final Thought
Capital account statements are more than just a reporting requirement, they’re a reflection of the fund manager’s operational rigor and commitment to transparency. LPs rely on them to validate their economics, assess performance, and make future commitments.