What is Unitized Accounting?
Unitization refers to the creation of a fund-like structure (akin to a mutual fund) that isn’t registered. This structure allows investors to pool their resources into a larger asset pool while maintaining individual sub-accounts. These sub-accounts represent smaller, distinct portions of the larger pooled investment, making it easier for investors to manage their specific interests within the collective investment.
In accounting for such structures, unitized accounting would involve tracking the performance and value of each investor’s sub-account within the larger pool. This method simplifies the management of investments, especially for entities managing a main pool of assets with various affiliated smaller entities or investors.
Benefits of Unitized Accounting
10. Ability to combine many smaller accounts together for consolidated investment management
9. Most accurate way to allow inter-period participant entry and exit to portfolio
8. Superior to master trust accounting as percentages are used, which make intra-period transactions difficult or inaccurate
7. Superior to master custody accounting, where trades are still held in each subaccount
6. With multiple portfolios by investment style, ability to provide broad asset allocation to participants regardless of dollar amount
5. Allocation of cost to administer on a pro rata basis among participants through unit value (NAV) calculation process
4. Most stringent GAAP accounting standards, using 40 Act mutual fund methodology
3. Reporting that accurately breaks down performance
2. Even though investment management consolidated, participants still receive the most accurate record of cost basis, realized and unrealized gains, and investment income
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