A feeder fund is an entity that pools investor capital and invests it into a "master" fund. Unlike a parallel fund, which invests directly alongside the main fund, a feeder fund invests as an LP in the master fund. The master fund holds all investments and makes all trading and investment decisions.
Why It Matters
Feeder funds simplify portfolio management by consolidating all investment activity in the master fund. The GP manages one portfolio, one set of trades, and one custody relationship. Different feeders handle different investor tax profiles, so you can accept capital from U.S. taxable investors, U.S. tax-exempt investors, and non-U.S. investors without creating conflicts in a single entity.
Key Details
- Most common in hedge fund structures, typically with a domestic feeder (U.S. LP) and an offshore feeder (Cayman or BVI entity).
- Each feeder is a separate legal entity with its own subscription documents and investor onboarding.
- Investors subscribe to the feeder, not to the master fund directly.
- The master fund audit covers investment performance and portfolio valuation. Each feeder audit covers investor-level allocations and NAV calculations.
- A typical structure includes a Delaware domestic feeder and a Cayman Islands offshore feeder, both investing into a single Cayman or Delaware master fund.
For more on how feeder and parallel structures compare, see Parallel Funds and Feeders.
Capital Company handles master-feeder accounting and multi-entity reporting as part of fund administration.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation.