What is a blocker?

Blockers usually appear in the fund structure for investors facing UBTI (unrelated business taxable income) or ECI (effectively connected income), and are common where a fund uses leverage or holds operating partnerships. Some are set up by the fund for all affected investors; others are chosen by individual investors. Often confused with a feeder fund, which pools investors rather than converting income.

Say an endowment invests $50 million through a blocker corporation rather than directly into a fund’s operating business. The endowment receives a dividend from the corporation, not business income.

It is a tax tool: it helps some investors avoid filing or tax they would otherwise face, at the cost of tax inside the corporation.