What Is a Master Feeder Fund?

A master feeder fund is an arrangement in which an investment company utilizes multiple funds to achieve its investment objectives. The master fund will work in conjunction with a feeder fund to achieve economies of scale in the investment markets. Here are a few things to consider about the master feeder fund.

Master Feeder Fund

This is an arrangement commonly used by hedge funds and some mutual funds. The feeder funds are set up so that they collect resources from investors. They then pass these resources onto a master fund. The master fund is in charge of making all of the investment decisions on behalf of the feeder fund. When profits are distributed, they go back to the feeder fund and then ultimately to the investor. This type of arrangement often utilizes multiple feeder funds to provide assets to the master fund.

Offshore Investing

This is a type of fund that works well when attempting to invest in offshore investments. In the United States, they will set up several feeder funds that funnel assets into a master fund located overseas. The master fund will then engage in investment activities in the overseas market. The money that is made from these investments will then be passed back to the feeder funds and to the investors. By doing this, the funds can often obtain superior returns compared to what they could get in the United States. The master fund is not subject to the same restrictions and rules that mutual funds are subject to in the United States. This allows them to engage in trading activities that would not be allowed under the rules of the Securities and Exchange Commission (SEC). 

In addition to that, the mutual fund can often get a tax advantage. If the master fund is set up in a country that is considered a tax haven, they can avoid paying any taxes to the local government. Since they are not actually conducting any business in a foreign country, they may not owe any taxes. This means that they can increase the profitability of the fund because they can cut out the tax liability. 

Economies of Scale

Another advantage of using the master feeder fund system is that it can help them achieve economies of scale. These feeder funds may be located in different areas of the world. They might all feed into a single master fund. When this happens, they can attract more investors from different areas, which will allow them to combine a bigger pool of assets. When you control a large pool of assets, it means that you will be able to get better prices on securities and other advantages that come with the economies of scale of a large fund. This can also provide them with better diversification because they can buy more securities for the master fund. 

blog comments powered by Disqus
Scottrade