What is a feeder fund?

Feeders are usually set up in the fund’s formation documents, with the master and each feeder governed by their own partnership agreements, which typically mirror one another. Master-feeder structures appear mostly in hedge funds and some large buyout or credit funds. A feeder is often confused with a parallel fund, which invests directly alongside the main fund rather than through it.

Say a $300 million U.S. feeder and a $200 million Cayman feeder each invest in one master fund. Both own pieces of the same portfolio, but each suits its own investors’ tax position.

It is why one fund can have investors from many countries and tax positions without separate portfolios.