Feeder Fund

A feeder fund is an investment vehicle that pools Capital from multiple investors to invest in a master fund. The master fund manages the investments and operates as a single entity, while feeder funds serve as conduits for investors to gain access to that master fund’s investment strategy. This structure allows for diversification and access to investment opportunities that may require a higher minimum investment than individual investors can provide.

For example, a hedge fund may establish a master fund that invests in various high-risk Assets. To attract a broader range of investors, the hedge fund creates several feeder funds, each targeting different types of investors, such as institutional or Retail Investors. Each feeder fund collects investments from its investors and contributes those funds to the master fund, which then executes the overall investment strategy.

In a case where a Private Equity firm has a master fund focusing on technology startups, it might have feeder funds for Accredited Investors and Institutional Investors. The feeder funds allow smaller investors to participate in the high-growth potential of the master fund’s portfolio while benefiting from the expertise of the Private Equity firm.