Master Fund

What Is a Master Fund?

A master fund is a collective pool of assets utilized in a master-feeder investment structure, which offers the benefit of decreased operating costs and trading expenses.

Master Fund Explained

A master fund is an investment fund utilized for executing securities when a master-feeder structure is used. A master-feeder structure builds on the concept of overseeing portfolios from a collective investment pool. It permits a fund company dealing with various feeder funds with a comparative objective to all the more thoroughly exploit conditional economies of scale.

Master-feeder arrangements can be utilized with various pooled funds. The decision to utilize a master-feeder structure is presented on a defense by-case basis as there are various advantages and frequently many factors included.

Open-End Mutual Funds

A open-end mutual fund is managed as a collective investment pool offering various share classes structured for various types of investors. Collectively the assets are pooled into a single portfolio, and the differentiation by share class is managed by the fund's accountants.

An open-end mutual fund might decide to add an extra layer to its collective investment by utilizing a master-feeder structure. This can be efficient for a fund company on the off chance that the investment company deals with numerous open-end funds with comparable objectives and holdings. In this case, a master-feeder structure would use a fund-of-funds approach where different open-end funds are feeder funds that thoroughly pool assets in a master fund.

With this type of fund-of-funds structure, the transactions are completely produced using the master fund. In the master fund, investment security transactions can be totaled and subsequently traded at a lower cost.

Master-Feeder Alternatives

Different types of funds, outside of traditional open-end funds, may likewise decide to build a master-feeder structure. A master fund might be laid out with feeder funds when there is critical differentiation required for various types of investors. For instance, a fund with U.S. furthermore, offshore investors might use a master-feeder structure by offering two feeder funds that take into consideration separated investment from U.S. furthermore, offshore investors.

Regulation and Disclosure

Master-feeder structures can be used by a wide range of funds. On the off chance that a master-feeder structure is used in a U.S. regulated fund, it will be uncovered in a fund's prospectus, with the terms of the master-feeder structure gave exhaustively. Master-feeder funds can be a helpful method for working on the cost efficiencies of a fund, be that as it may, the somewhat more muddled structure can make them a higher risk investment in purviews with negligible regulations.