A Feeder Fund is a pooled investment vehicle that channels capital from multiple investors into a larger, centralized fund known as a Master Fund. This master-feeder structure is common across hedge funds, private equity vehicles, and other alternative investment setups.

Key Characteristics

• Investment Aggregation: The feeder fund collects capital from individual or institutional investors and invests it into a master fund. This reduces the operational burden at the master level by consolidating investor relationships.

• Strategy Access: Investors participate indirectly in the master fund’s strategies—typically those requiring higher capital thresholds, specialized mandates, or regulatory alignment.

• Portfolio Exposure: While the master fund typically holds a diversified portfolio, investors in the feeder fund are exposed to the performance of that single vehicle.

• Fee Structure: Feeder fund investors are generally subject to a two-tier fee model—fees at the feeder level and fees at the master fund level, both of which affect net returns.

This structure is particularly useful when managing capital from a geographically diverse investor base, allowing for operational centralization at the master fund level while tailoring feeder vehicles to meet jurisdictional, regulatory, or investor-specific requirements. Here’s how a typical master-feeder arrangement functions in practice:

• Feeder Formation: One or more feeder funds are set up to pool capital from segmented investor groups.

• Investment into Master: The feeder funds allocate that capital into the master fund, which centralizes all trading and portfolio management activities.

• Distribution: Profits or losses from the master fund are allocated proportionally back to the feeder funds, which then distribute proceeds to their respective investors (net of fees).