what is Feeder Fund

A feeder fund is an investment vehicle that pools capital from multiple investors, often through a master-feeder structure, to invest in a centralized master fund. This structure allows fund managers to expand their investor base and capitalize on economies of scale while offering tailored investment solutions to different groups of investors, such as those with varying tax situations or investment requirements.

1. **Master-Feeder Structure**:
- A master-feeder structure is a common arrangement used by hedge funds and private equity firms to aggregate capital from multiple feeder funds into a single master fund.
- The master fund is responsible for making all investment decisions and trading activities, while the feeder funds collect capital from specific investor groups and invest it in the master fund.
- This structure enables fund managers to benefit from a large capital pool while catering to niche markets with separate feeder funds tailored to specific investor needs.
2. **Feeder Funds**:
- Feeder funds are investment funds that collect capital from a specific group of investors, often segmented by region, currency, or investor type.
- They invest the pooled capital in the master fund, which executes the investment strategy.
- Feeder funds can offer advantages such as potentially better tax treatment for investors, as they can be structured to avoid double taxation and optimize tax strategies across different jurisdictions.
3. **Benefits of Master-Feeder Structure**:
- The master-feeder structure allows fund managers to expand their investor base and raise capital more efficiently by pooling resources from multiple feeder funds.
- It provides flexibility in terms of investor segmentation, fee structures, and operational attributes, which can be tailored to meet the specific needs of different investor groups.
- For investors, this structure can offer access to a diversified investment portfolio through the master fund, which may not be available to individual investors directly.

In summary, feeder funds through a master-feeder structure enable fund managers to leverage economies of scale while catering to diverse investor segments, enhancing capital-raising potential and optimizing tax strategies for investors.