What Is a 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 structure, also called a hub and spoke structure. Employers can use a master trust structure for pooling investments in an employee benefit plan.
- A master trust is an investment vehicle that collectively manages pooled investments.
- A portfolio manager is responsible for overseeing the assets in the master trust.
- Employers can use a master trust structure for pooling investments in an employee benefit plan.
- Often employers use a master trust because it simplifies the process of managing employee benefits and keeps management costs down.
How a Master Trust Works
A master trust is typically some type of pooled investment vehicle that allows for the management of funds contributed from multiple sources. A portfolio manager is responsible for overseeing the assets in the master trust. The accounting and reporting functions for a master trust are usually complex. This is because a master trust 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. Basically, it is the master fund that collectively invests for all the associated feeder funds. In a master-feeder structure, assets are pooled, managed, and transacted from the master trust.
BlackRock, for example, is an 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 at BlackRock Master Portfolios. Managing and trading assets collectively from a master trust allows the company to keep fund operating costs down.
Master trusts can be used for managing all types of portfolios.
Overall, master trusts provide for greater economies of scale. 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.
Types of Master Trust
- Unit Investment Trust: A unit investment trust (UIT) 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 Plan: An employee benefit plan 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. The portfolio manager manages the assets 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. Often employers use a master trust because it simplifies the process of managing employee benefits.