Feeder Funds Explained: How They Work and Why They Matter
Learn how feeder funds pool investor capital, plug into a master fund, and open access to strategies that are normally out of reach
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Obtaining access to large investment strategies often requires more capital and infrastructure than most investors can afford on their own. Feeder funds bridge that gap by pooling commitments and directing them into a central master fund, making sophisticated opportunities more accessible.
What is a Feeder Fund?
A feeder fund is an investment vehicle that pools money from multiple investors and directs that capital into a larger “master fund.” The master fund is where the investment strategy, trading, and portfolio management take place. By consolidating everything into one structure, the fund becomes easier to run and more cost-efficient.
Think of a hedge fund with a US$5M minimum. You plan to invest US$150k, which doesn’t meet the requirement. A feeder fund lets you invest your US$150k alongside other investors. Together, you reach the minimum and access the same strategy through the master fund.
This structure differs from traditional funds and Special Purpose Vehicles (SPVs). Traditional funds invest directly into multiple assets. An SPV exists for one specific deal. A feeder invests almost entirely in one master fund.
How Feeder Funds Work
Investors commit capital into the feeder vehicle. The feeder then invests that pooled capital into the master fund, which manages the entire portfolio. Returns flow back to the feeder based on its share of the master fund, and the feeder allocates gains or losses to investors. Fees are paid at the feeder level, and performance fully depends on the master fund.
In many setups, a feeder is structured as an SPV, offering a more streamlined way for investors to pool commitments while still tapping into the master fund’s strategy. This structure works best when feeder investors share the same investment goals. Any unique strategy is absorbed once inside the master fund.
Key Benefits for Investors
Access to Exclusive Opportunities
These funds allow individuals and smaller institutions to access high-profile funds that typically have very high minimums. Through pooled participation, investors gain access to opportunities that would be inaccessible on their own.
Diversification
Since the master fund often holds a broad range of assets across markets or geographies, investors gain diversified exposure without having to build the portfolio themselves.
Professional Management
Investors benefit from the expertise, diligence, and strategy execution of seasoned fund managers who run the master fund at institutional standards.
Operational Convenience
The feeder structure manages complex elements like compliance, currency, and cross-border requirements, allowing investors to participate through a familiar and streamlined process.
Economies of Scale
Because the master fund aggregates capital from multiple feeders, it can negotiate better terms and reduce trading and operational costs, improving overall efficiency.
When Investors Use Feeder Funds
Family offices, institutions, and emerging managers often use this structure to access top-tier strategies, gain offshore exposure, or enter markets with high minimums. For many, feeders offer a practical path into global or alternative investments that are otherwise difficult to reach directly.
Frequently Asked Questions:
Are feeder fund investors able to choose specific investments inside the master fund?
No. Investors get exposure to the master fund’s entire portfolio, and all allocation decisions are made by the fund manager.
Do feeder funds have different tax implications compared to investing directly in the master fund?
Yes. Feeder funds are often set up in different jurisdictions to suit specific investor groups, so tax treatment varies by structure and investor residency.
Can feeder fund investors redeem or exit at any time?
Usually no. Redemption timing follows the master fund’s schedule, including lock-ups and withdrawal windows, with limited flexibility at the feeder level.
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