Feeder Fund
A feeder fund is one of several sub-funds that put all of their investment capital into an overarching umbrella fund, known as a master fund, for which a single investment advisor handles all portfolio investments and trading. This two-tiered investment structure of a feeder fund and a master fund is commonly used by hedge funds as a means of assembling a larger portfolio account by pooling investment capital.Profits from the master fund are then split, or distributed, proportionately to the feeder funds based on the percentage of investment capital they have contributed to the master fund.
Definition: A feeder fund is a type of investment fund that pools its capital and invests it into a master fund, which is managed by a single investment advisor responsible for all portfolio investments and trading. This two-tier investment structure, consisting of feeder funds and a master fund, is commonly used by hedge funds to create larger investment portfolios by aggregating investment capital. The returns from the master fund are then distributed to the feeder funds based on the percentage of capital each feeder fund has contributed to the master fund.
Origin: The concept of feeder funds originated in the hedge fund industry as a means to pool multiple investors' capital to create a larger, more diversified investment portfolio. The earliest feeder fund structures can be traced back to the 1980s when hedge funds began seeking more efficient capital management methods.
Categories and Characteristics: Feeder funds are primarily divided into two categories: domestic feeder funds and offshore feeder funds. Domestic feeder funds are typically aimed at local investors and comply with local regulations, while offshore feeder funds target international investors and are usually established in tax-advantaged offshore financial centers. The main characteristics of feeder funds include: 1. Capital Aggregation: Pooling multiple investors' funds to form a larger investment portfolio; 2. Professional Management: Investment decisions and trading are handled by professional investment advisors; 3. Risk Diversification: Diversifying investments to reduce the risk of any single investment.
Specific Cases: Case 1: A hedge fund company sets up a master fund and several feeder funds. The master fund invests in global stock markets, while the feeder funds cater to investors from different regions. Through this structure, investors can choose the feeder fund that suits their risk preferences and investment goals while benefiting from the professional management and diversified investments of the master fund. Case 2: An investment company establishes a master fund focused on technology stocks and sets up multiple feeder funds targeting high-net-worth individual investors and institutional investors. This structure allows the investment company to manage capital more effectively and provide customized investment solutions for different types of investors.
Common Questions: 1. What is the fee structure of feeder funds and master funds? Typically, both feeder funds and master funds charge management fees and performance fees, with the specific fee structure detailed in the fund's prospectus. 2. What are the risks of investing in feeder funds? The main risks include market risk, management risk, and liquidity risk. Investors should carefully read the fund's prospectus to understand the associated risks.
