A master feeder fund functions as a special investment structure for pooling investment capital or subscriptions from multiple investors into a single vehicle referred to as the master fund. Often a limited partnership, a master feeder fund is used by hedge funds where participating investors invest in both onshore and offshore feeder funds. Master and feeder funds are typically managed by a single investment manager who directs and supervises all investments held in the Master portfolio.
In a master feeder fund structure, separate investment vehicles are created for each group of investors within the same umbrella. The profits gained by the master feeder fund is typically split on a pro-rated basis among its feeders in direct proportion to the total percentage of their respective investments.
A feeder is considered a separate legal entity from the master feeder fund but is considered a relevant entity for both lenders and funds when it comes to the context of lending relationships, such as in creating a subscription-based credit facility.
Investment Managers form feeders for the following reasons:
- Feeders offer flexibility in relation to investor tax status
- Employee Retirement Income Security Act (ERISA) funds
- Minimum capital investments
- Fee structures and administrative features that can be customized based on the specific needs of any investor
Feeder funds that invest in the same Master portfolio may choose to customize using variations that may differ in the following factors:
-
Investor Type
– Eligible investor
– Institution
– Qualified investor per country
-
Fee Structures
– Management fee
– Distribution fee
– Performance fee
-
Net Asset Values
-
Individualized operational attributes, including goals, gate, and many more
In essence, a feeder fund does not have to stick to only one specific Master feeder fund. A feeder is considered an independent entity that can invest in multiple Master feeder funds. Management and performance fees are typically paid at the feeder-fund level but may also be paid at the Master feeder fund level.
Advantages of Master Feeder Fund Structures
- Efficient consolidation of various investment portfolio into a single one for regulatory purposes.
- Reduce trading costs as trading fees in Master feeder fund structures are only a percentage of total transaction value.
- By carrying out a single transaction for multiple portfolios, investment managers avoid paying multiple trading fees.
- Creation of Master feeder funds establishes economies of scale that provide many benefits, including reduced operational and transactional costs.
- Generates a diverse investor pool, allowing tax-exempt and foreign investors to invest in the master fund resulting in a larger pool of funds.
Significant opportunities exist for investment managers to access competitive capital markets in a legal and tax efficient manner, provided all appropriate structures are carried out with great precision. Adopting a Master feeder fund structure also affords investment managers to access different types of investors resulting in the greater flexibility and efficiency in the operations and management of Master and feeder funds. Master feeder funds are designed to maximize potential for asset growth, exceeding regulatory barriers to facilitate easy access to larger, more profitable global capital markets.
Damalion provides comprehensive consulting services for foreign legal entities, including private investors and family offices in choosing the right Master and feeder funds to grow their assets and further expand their portfolio. To determine whether a Master feeder fund structure is the right choice for your expansion, talk to a Damalion expert today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Master–Feeder funds in practice — how the structure works, investor routes, domiciles, AIFM and depositary bank where required, tax touchpoints, and documents that keep operations tidy.
Damalion facilitates planning, formation, and day-to-day coordination for sponsors, family offices, and professional investors
Last updated: 12 September 2025
What is a master–feeder fund and when does it make sense?
A master–feeder structure pools capital from two or more “feeder” funds into one “master” portfolio. It is chosen when you want one investment engine but different investor entry points, for example onshore versus offshore, or tax-exempt versus taxable investors. Damalion experts may advise whether this route fits your investor profile or if a parallel fund set-up is a better match.
How do the feeders connect to the master in legal terms?
Each feeder issues interests to its investors and invests substantially all assets into the master. The master executes the strategy and books trades. Key agreements align subscription mechanics, valuation cut-offs, and expense allocation so investors entering through different feeders are treated consistently.
- Feeders — typically separate legal entities with their own boards and offering documents.
- Master — holds the portfolio and allocates performance pro-rata by feeder capital.
- Advisory chain — investment manager or AIFM, plus administrator and, where applicable, a depositary bank.
Which domiciles and wrappers are commonly paired?
Sponsors often pair an EU feeder with an offshore feeder and route both into a master that sits where operations, service providers, and investor expectations line up. In the EU, Luxembourg vehicles such as a RAIF (often as a SICAV or SCSp) are popular with an authorised AIFM and a depositary bank where required. Offshore feeders are frequently established in jurisdictions like the Cayman Islands. Damalion coordinates the Luxembourg leg and works alongside your offshore counsel.
How do subscriptions, calls, and allocations work day to day?
Open-ended feeders accept subscriptions and redemptions on dealing days, with the master processing corresponding subscriptions and redemptions to keep exposure aligned. Closed-ended feeders follow commitment and capital-call schedules, and the master draws capital on the same timetable. Equalisation rules and expense caps should match across documents to avoid unintended differences.
When are an AIFM and a depositary bank required?
For EU alternative investment funds, the AIFMD framework requires an AIFM and, where the fund is within scope, a depositary bank for safekeeping, oversight, and cash-flow monitoring. The duty can sit at the master level, feeder level, or both, depending on the wrapper and offering. Damalion helps align these appointments so reporting lines stay clear.
What are typical tax touchpoints to confirm early?
Decisions about feeder types and master domicile should be tested for investor tax outcomes, withholding at source, and any treaty positions available to the chosen wrappers. Some masters are organised as partnerships for transparency; others are corporate for pooling and accounting simplicity. We coordinate with your tax advisors so the document suite reflects the intended approach.
Which documents keep governance and reporting consistent?
Offer documents, the limited partnership agreement or articles, the investment management agreement, and the administration, valuation, and depositary contracts should line up on valuation timing, expenses, side-letter handling, and “best-terms” obligations. Keep one consolidated side-letter register and a simple rule: if an investor is entitled to better terms under that rule, they receive the same terms.
- Valuation policy and cut-offs mirrored at master and feeders.
- Expense waterfall and fee offsets expressed in plain words.
- Dealing calendar or call schedule shared with providers and investors.
How do you set up a master–feeder fund from intent to first close?
Damalion facilitates each step so the structure is clear for investors and efficient for providers.
- Define scope. Strategy, investor routes, dealing or call cadence, and target domiciles.
- Pick the form for the job. Choose wrappers for each feeder and the master, and map provider roles.
- Confirm regulatory path. AIFM appointment and depositary bank engagement where required for EU AIFs.
- Draft the pack. Offering documents, LPA or articles, investment management and administration agreements, valuation and conflicts policies.
- Open accounts and rails. Bank, registrar, and dealing procedures with dual-control rules.
- Operational test. Run a dry subscription, transfer to the master, and a valuation cycle.
- First close and go-live. Approvals, service contracts signed, calendar released to investors.
Master–Feeder at a glance
A quick view.
| Topic | Key points |
|---|---|
| Use case | One portfolio, multiple investor routes (onshore/offshore, tax-exempt/taxable) |
| Governance | Aligned documents, shared calendars, single side-letter register |
| Regulatory | AIFM and depositary bank where required for EU AIFs |
| Valuation | Identical cut-offs master/feeder; expense and fee consistency |
Related reading
These guides help you place a master–feeder alongside other options.
