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April in the United States is tax filing month – at least, for individuals (unless they get an extension to October). And in the private funds’ world, it is also notable for being the month when we get an accurate picture of the previous year’s Form ADV filings, given that private fund managers with a December 31st year end tend to leave it late and file in March (they have up to 90 days after their year-end to do so).

A lot of interesting information can be gleaned from the Form ADV documents, including which funds changed auditor in the past year. We conducted this exercise in 2024 and found that 2,373 private funds took the plunge and switched arguably their most investor eyebrow-raising service provider.

So, we’re doing it again this year. And the headline is that in 2024, auditor changes increased.

3,201 funds changed their auditor, a nominal increase from the previous year in both absolute terms and when looked at as a percentage of funds outstanding; of the eligible universe, 2.9% of funds changed auditors in 2024 vs. 2.6% last year.

Reasons abound as to why a private fund adviser might switch their auditor; cost savings, a key person moving to a new provider (which is not easy to do given the non-competes in the US) or a perceived superior offering, to name a few.

But the private fund could also just as easily have been fired by the auditor – that’s not good, and so tough questions are asked of a private fund manager that changes their auditor – especially in the hedge fund space, which tend to be open-ended, and therefore easier for an investor to redeem.

Figure 1: US Private Fund Auditor Changes, by Fund Type, 2024

Source: 9AT

*Securitized Asset Funds and Liquidity Funds are excluded due to lack of statistical significance 

Once again, the usual suspects feature heavily in the ‘firms which took share’ league table. In 2023, the top five overall, in order, were Deloitte, PwC, KPMG, RSM and EY. In 2024, the top five overall were, in order, Deloitte, KPMG, PwC, EY, and BDO. 

What is interesting, however, is what is under the hood. Separating the league tables into fund types shows Cohn Reznick making a splash in the private equity and real estate categories; the firm did not feature in the top five auditor replacement league table last year. And neither did Calvetti Ferguson, third in the venture capital list this time – although, all of the firm’s 76 fund gains were by just one adviser, Claritas Capital. 

Figure 2: US Private Fund Auditor Changes, by Replacement Auditor, 2024

Source: 9AT 

Across the five largest categories of funds available for selection on Form ADV, non-Big Four audit firms feature nine times out of 25. That is down one from last year, when 12 spots were claimed by these firms. The total number of firms featured on the table above is just 10.

Changing fund administrator is, in theory, less of a potential investor eyebrow-raiser than switching auditor, and indeed, some closed-ended private funds even administrate their own funds as opposed to hiring an independent one. 

It should be little surprise, therefore, that the number of private funds that changed their admin in 2024 was higher – but it might be a surprise that the number was not significantly higher. 3,943 funds got themselves a new fund administrator last year, good for 3.5% of the total. 

Figure 3: US Private Fund Administrator Changes, by Fund Type, 2024

Source: 9AT

*Liquidity funds excluded due to lack of statistical significance

The top five admin firms are, like their auditor cousins, well known for their presence in the administrator market but their lofty league table positions do not mirror the audit category in terms of dominance. The market share among admin firms is much flatter when compared to the significant drop-off from the Big Four audit firms to fifth position, so the likelihood of significant changes next year are higher here.

What is also notable about Figure 3 is the presence of securitized asset funds. We took a closer look at these products last month, and 770 (or a whopping 22%!) of them changed administrator last year.

There is a wider distribution of firms in the fund administrator replacement league table, making the space less concentrated than the auditor one. A total of 17 firms feature in the six sub-categories in figure 4 below, but removing the Securitized Asset Fund category (to provide an apples-to-apples comparison with the auditors) shows just 12 firms in total, only two more than in Figure 2; by removing Securitized Asset Funds from the “All” category, Maples and US Bank come out, Apex and SS&C move up and Juniper Square enters fifth place in the overall standings.

Figure 4: US Private Fund Administrator Changes, by Replacement Administrator, 2024

Source: 9AT

Whether the increase in auditor replacements is a trend remains to be seen – our regular readers will need to wait until next year to find out, at which time we’ll also have a year-on-year comparison for the administrators.

But what can be deduced from last year’s Form ADVs is that more managers were willing to change their auditor than in the prior year – and the continued use of the Big Four to replace the incumbent suggests that cost cutting is less likely to be a reason why private fund advisers switch.

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