Feeder funds are commonly used in hedge fund investing, allowing investors to route their assets to a central fund. Both foreign and domestic investors can use feeder funds to invest in the same hedge fund, with the funds grouped into a master fund. This structure allows for a more efficient investment method and can help protect investors from PFIC feeder charges. It is important to speak with an investment professional before investing.
A feeder fund makes most or all of its investments through the main fund. Secondary funds are commonly used in hedge fund investing. It is a commonly used method of transferring investor funds from one account to another. These funds help route the assets of various investors to a central fund.
Both foreign and domestic investors can use feeder funds to invest in the same hedge fund. When configured, the funds are grouped into the master fund. While this process may seem complex, it is one of the most convenient and profitable methods available to multiple investors.
By way of example, a US investor may invest in a US feeder fund. At the same time, a UK investor could invest in an offshore hedge fund. Both funds could share the same master fund. In most situations, the main fund, which is sometimes called the core fund, is on the outside. In this arrangement, the master fund manager is responsible for investing and managing all funds in the underlying investments.
Establishing a feeding fund is not difficult. An investment manager from the offshore company will establish the master fund, which can then accept funds from secondary funds. Hedge fund managers created them. In the United States, they are often set up as a limited partnership.
The benefits of using a master-fund structure may depend on the situation. One of the biggest benefits is that this structure allows for a more efficient investment method. With this structure, country-specific regulations can be met, while making asset procurement a simple process. If this process did not exist, the method of moving funds from investors to the hedge fund would be quite complex, especially when multiple domestic investors are present.
For US taxable investors, ownership of a Passive Foreign Investment Company, or PFIC, can be very expensive. Offshore feeder funds are typically a PFIC, but the master fund is not. This allows the transaction to be arranged so that the master fund is labeled as a partnership under US tax requirements. This helps protect the inverter from PFIC feeder charges.
Feeder funds are common with hedge funds and similar investment styles. They can be confusing for a new investor. In some situations, they can be problematic if full disclosure does not occur. It is always a good idea to speak with an investment professional before investing.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
