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Feeder Fund

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Definition of 'Feeder Fund'

One of several funds that feed into an umbrella fund called the master fund, which oversees all portfolio investments and trading activity. This structure is commonly used by hedge funds to pool investment capital. The master fund's profits are split on a pro-rata basis among the feeder funds in proportion to their investment. Management and performance fees are also paid at the feeder funds level.
Investopedia Says

Investopedia explains 'Feeder Fund'

A feeder fund can obtain better trading and operating costs through the master-feeder structure because of economies of scale, rather than operating on its own. However, this structure would not be appropriate for a feeder fund that has unique investment characteristics and priorities, since these would be subsumed along with the other feeder funds in the master fund.

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