Master-Feeder Structure

In a master-feeder structure, investors subscribe to feeder funds that invest substantially all of their assets in a master fund. A common arrangement for hedge funds uses a US limited partnership feeder for US taxable investors and an offshore corporate feeder, often in the Cayman Islands, for non-US and US tax-exempt investors, both investing in an offshore master.

The structure lets the manager run one portfolio while accommodating investors with different tax and regulatory needs. It avoids splitting trades across parallel funds and keeps execution and costs consistent.

Operationally, it requires allocation of master-level income, expenses and gains to each feeder, separate NAV calculation at each level, and fee and investor accounting at feeder level. Pitfalls include allocation errors between feeders, inconsistent valuation timing, cash movements between master and feeders that are not reconciled, and separate audit and tax reporting obligations, including K-1s for onshore partners.