What is a feeder fund?
A feeder fund is a type of investment fund that does the majority of its investments through a master fund, using a master feeder relationship. It is similar to a strategy called fund of funds, but the main difference is that the master fund does all the investing.
Key takeaways
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A feeder fund invests primarily through a master fund that handles all trading and portfolio investments through one advisor.
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Feeder funds differ from fund of funds structures because the master fund does all the investing in a master-feeder relationship.
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Hedge funds commonly use feeder funds to merge investment capital from multiple sources and create stronger combined accounts.
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The primary goal of the master-feeder structure is to reduce trading costs and overall operational costs for investors.
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Cost reduction is achieved through economies of scale as the master fund accesses pooled capital from various feeder funds.
Where have you heard about feeder funds?
A feeder fund, master fund and a fund of funds are all very similar and sometimes intertwine with one another, so if you know about one of these strategies, you’ll likely have heard of the others.
What you need to know about feeder funds...
There are a variety of investment funds that put their investment capital into a type of enveloping fund called a master fund, where all trading and portfolio investments are then handled by one advisor. Feeder funds are often used by hedge funds in an attempt to gather a stronger account by merging investment capital. The main goal of the feeder fund and master fund structure is to reduce trading costs and the overall cost of operations. This is achieved because the master fund basically meets economies of scale by having access to the investment capital pool provided by various feeder funds.
Find out more about feeder funds..
To better understand how feeder funds work, see our page on investment funds.