DEFINITION of Master Trust
A master trust is an investment vehicle that collectively manages pooled investments. It can refer to the main fund where assets are pooled and collectively managed in a master-feeder fund structure, also called a hub and spoke structure. A master trust structure may also be used for pooling investments in an employee benefit plan.
BREAKING DOWN Master Trust
A master trust is typically some type of pooled investment vehicle that allows for management of funds contributed from multiple sources. Accounting and reporting for a master trust is usually complex since it involves multiple investors and may include many feeder funds.
A master trust is used as part of a comprehensive asset management scheme for a strategy managed with a master-feeder structure. The master trust is the master fund which collectively invests for all the associated feeder funds. In a master-feeder structure, assets are pooled, managed and transacted from the master trust.
BlackRock is one asset manager with an array of master-feeder funds. Each of the funds has a master trust where the assets are managed collectively. The investment company’s Master Trust LLC strategy uses a master-feeder structure. The Master Trust LLC is the master fund and its feeder funds include: BIF Treasury Fund and BBIF Treasury Fund. Other examples of BlackRock hub and spoke funds can be found here: BlackRock Master Portfolios. Managing and trading assets collectively from a master trust allows the company to keep fund operating costs down.
Unit Investment Trust
A unit investment trust may also be known as a type of master trust. These vehicles pool shareholder investments and typically include diversified holdings managed to a specific strategy. A unit investment trust may have a specified duration with a predetermined maturity date.
Employee Benefit Plans
Employee benefit plans may also choose to collectively manage assets for employees in a master trust. An employer can establish a master trust for which they and their employees collectively contribute investments. Assets are managed collectively in the master trust. Companies may also choose to pool assets with other companies in a master trust specified with clear objectives and segregated reporting.
Master Trust Advantages
Overall, master trusts provide for greater economies of scale. They can be used for managing all types of portfolios. They allow a designated portfolio manager to manage the assets in a collective fund, keeping management costs down. Collectively pooling assets can also keep transaction costs low.