A master-feeder fund is an investment vehicle, usually a limited partnership, that pools assets and capital commitments of investors, and invests or “feeds” such capital into an umbrella fund, usually referred to as a master fund, which in turn directs and oversees all investments held in the Master portfolio.
The master-feeder fund is simply called feeder and is a method of structuring investment funds, whereby, different investment vehicles are created for a group of investors.
Structure of a Master-Feeder Fund
In a master-feeder fund structure, investors put their capital into feeder funds which are then invested into a master fund. While the feeder fund purchases the shares of the master fund, the master feeder fund performs all trading in the market and makes all portfolio investments. A master-feeder fund structure enables the accumulation of a mass of tradable assets, which will boost operational efficiencies and help minimize costs.
The feeder and master funds don’t necessarily have to be in the same geographical location. The master fund may collect money from a variety of sources and put it into an investment portfolio.
A master/feeder structure is primarily used when a strategy is offered across different regulatory environments. Both funds will receive subscriptions and redemptions, but the feeder will invest all the earnings in the master. Feeder funds are separate legal entities and may thus show a difference in minimum investment amounts, investor types, fees, and net asset value.
Feeder funds function unaided and can be invested in any master fund.
Advantages of the Master-Feeder fund structure
- One of the most important advantages of feeder funds is the reduction in operational costs since trading in mirror portfolios lets the master-feeder fund eliminates the need to split tax lots.
- A master fund gives space for the merger of numerous investment portfolios into one solid portfolio. So multiple portfolios will be easier to manage with a master-feeder structure.
- The master-feeder fund structure enables a fund manager to consolidate several sources of capital into a centralized vehicle known as a master fund.
This structure is developed to facilitate and maximize the potential for growth in assets under management in a way than surpasses regional regulatory barriers to facilitate access to the international capital markets, but careful planning is needed.
For more information on the management of your asset and the structuring of your investment fund in Luxembourg, let’s go ahead and contact your Damalion expert now.
