What Evidence Confirms That Investor Cash Is Held Separately From Manager Assets?

To confirm investor cash is held separately from manager assets, trace the money to an account record issued by the bank or custodian and match it to the fund's legal structure and accounting records. A balance shown only on a manager-prepared statement does not establish the account owner or who controls the cash.

Start With the Account Record

Request a bank or custodian statement for the relevant period. Check the account title, named owner, account type, statement dates, and cash balance. Compare the account name with the fund entity identified in its offering and governing documents. If the account is an omnibus or pooled account, ask for the records that identify the fund's allocated share and how that allocation is maintained.

Ask for the account opening or ownership record if the statement does not make ownership clear. Confirm whether the bank or custodian can send statements directly to the administrator or another independent reviewer. Ask whether the fund can authorize direct confirmation of the balance. A screenshot or manager-created schedule may help explain a figure, but it does not replace a record from the institution holding the account.

Reconcile Deposits and Withdrawals

Obtain the cash ledger and reconciliation covering the same period as the statement. Match subscriptions, redemptions, fees, wires, and ending cash. Ask who prepared the reconciliation, who reviewed it, how often it is done, and how unmatched items are investigated. If there is a difference, request the transaction-level support and the documented resolution.

Questions to ask include:

• "What legal entity is named on the account holding investor cash?"
• "Can the bank or custodian confirm balances directly to the administrator or auditor?"
• "How is each fund's share identified if cash sits in a pooled account?"
• "Who prepares and reviews cash reconciliations, and how are exceptions closed?"
• "Who can initiate a wire, approve it, or change its beneficiary details?"

Look for regular reconciliations that tie to third-party statements and an independent review trail. Missing periods, stale reconciling items, unexplained transfers, or an account title inconsistent with the documents call for follow-up.

Check Control Over Cash

Ask for the authorized-user list and a description of wire controls. Determine whether one person can create and approve a payment, add a new beneficiary, and change account access. Find out how the fund confirms payment instructions using a contact method already on file. Talk with your attorney about what the account and fund documents say about cash ownership, and with your CPA about accounting treatment if pooled balances are involved.

Cash held in an account titled to a fund entity can still have weak controls. Conversely, a structure with an intermediary may be explainable if records identify the fund's beneficial portion and transaction history. Assess the documents and reconciliations together. Richard has discussed separately managed accounts as a way for assets to remain in an investor's name while a manager has authority to direct trades within agreed limits. That distinction helps frame two separate checks: who owns the cash and who is allowed to act on it.

Checklist

• Obtain bank or custodian statements that show account ownership and balances.
• Compare account titles with fund documents and entity records.
• Match statement activity to the cash ledger and reconciliation.
• Confirm how pooled cash is allocated to the fund.
• Review who can initiate transfers, approve them, or change beneficiaries.
• Keep evidence of direct balance confirmation and resolution of exceptions.

For the broader asset holding arrangement, see how to assess custody arrangements. For the effect of a provider interruption, see what happens if an administrator or custodian fails.

Go deeper: What controls should prevent unauthorized trades or transfers?.

Sources: Family Office Club investor due diligence framework, The Family Office Book. Informational only, not financial, legal or tax advice.