Master-Feeder Fund

AAA

DEFINITION of 'Master-Feeder Fund'

A structure commonly used by hedge funds to pool investment capital raised by U.S. investors - both taxable and tax-exempt - and overseas investors into one central vehicle called the master fund, with separate investment vehicles or feeders created for each investor group. Investors invest in the feeder funds, which in turn invest their assets in the master fund. The master fund makes all the portfolio investments and conducts trading activity, while management and performance fees are payable at the feeder-funds level.

INVESTOPEDIA EXPLAINS 'Master-Feeder Fund'

One master-feeder fund advantage is that its structure enables consolidation of multiple portfolios into one, which reduces trading and operation costs. It also has economies of scale and, by virtue of its size, can obtain better service and favorable terms from prime brokers and other institutions.


A major master-feeder fund disadvantage is that offshore funds are usually subject to withholding tax on U.S. dividends. As well, the structure combines investors with very different characteristics and investment priorities, and investments and strategies that are appropriate for one type of investor may not be appropriate for another type of investor.

RELATED TERMS
  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Feeder Fund

    One of several funds that feed into an umbrella fund called the ...
  3. Prime Brokerage

    A special group of services that many brokerages give to special ...
  4. Offshore

    1. Located or based outside of one's national boundaries. The ...
  5. Tax Exempt

    To be free from, or not subject to, taxation by regulators or ...
  6. Return Over Maximum Drawdown (RoMaD)

    Return over Maximum Drawdown (RoMaD) is a risk-adjusted return ...
RELATED FAQS
  1. What's the difference between a mutual fund and a hedge fund?

    These two types of investment products have their similarities and differences. First, the similarities: Both mutual funds ... Read Full Answer >>
  2. How much of the asset management industry has moved from traditional managers to ...

    While the exact numbers are difficult to calculate due to variations in measurement and the overall growth of the asset management ... Read Full Answer >>
  3. What's the difference between a collateralized debt obligation (CDO) and a collateralized ...

    A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security (MBS) issued by an lender that handles ... Read Full Answer >>
  4. What's the difference between the hurdle rate and the high water mark?

    Hurdle rate and high water mark are two types of benchmarks that hedge funds can set as requirements for collecting incentive ... Read Full Answer >>
  5. How did the financial crisis affect the banking sector?

    Over the short term, the financial crisis affected the banking sector by causing banks to lose money on mortgage defaults, ... Read Full Answer >>
  6. What does standard deviation measure in a portfolio?

    Standard deviation is a mathematical measurement of average variance and features prominently in statistics, economics, accounting ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Taking A Look Behind Hedge Funds

    Hedge funds can draw returns well above the market average even in a weak economy. Learn about the risks.
  2. Options & Futures

    Hedge Funds: Higher Returns Or Just High Fees?

    Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one.
  3. Investing Basics

    What is a Foreign Institutional Investor?

    A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile.
  4. Mutual Funds & ETFs

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  5. Mutual Funds & ETFs

    How To Start A Hedge Fund In The UK

    Starting a new hedge fund in the United Kingdom is more complex than in the United States. We discuss UK laws and regulations for starting a new hedge fund.
  6. Mutual Funds & ETFs

    Want To Work At a Hedge Fund? These Are The Top Entry-Level Jobs

    Lucrative salary, high perks, and best quantitative brains at work - Here are the common entry level positions for those aspiring for a career in hedge fund industry.
  7. Mutual Funds & ETFs

    How To Mimic A Hedge Fund Strategy

    Hedge fund replication strategies are beneficial to individual investors who would like hedge fund-like returns without the drawbacks.
  8. Mutual Funds & ETFs

    How To Start A Hedge Fund In Canada

    Would-be hedge fund managers in Canada need to understand the laws and regulations that must be followed in order to start a fund in the country.
  9. Mutual Funds & ETFs

    These 4 Precious Metals ETFs Help Combat Inflation

    A look at 4 precious metal ETFs to combat inflation when it hits.
  10. Investing

    Hedged ETFs That Help You Cushion Currency Impact

    If you’re an investor holding non-U.S. assets, the returns on your investments will be affected when you translate your investment from its local currency

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center