What is a Feeder Fund?
A feeder fund is an investment vehicle that pools capital from multiple investors to invest in a master fund. The master fund is typically a more complex investment strategy with the potential for greater returns, while the feeder fund allows individual investors access to this opportunity. Feeder funds are particularly popular in alternative investments, such as hedge funds and private equity, where the minimum investment requirements may be prohibitively high for individual investors.
The structure usually involves several feeder funds investing into one master fund. Each feeder fund can have its own fee structure and investment terms, tailored to the needs of its investors. This setup allows for diversified access to sophisticated investment strategies, often managed by experienced portfolio managers. The primary advantage of feeder funds is that they democratize access to usually exclusive investment opportunities.
However, investors should be aware of the associated fees and the additional layer of management, as these can impact overall returns. It is essential to conduct thorough due diligence before investing in a feeder fund to ensure it aligns with your financial goals and risk tolerance.