Funds

Feeder Fund and Master-Feeder Structure

A feeder fund is a fund that invests most or all of its assets in another fund, called the master fund. In a master-feeder structure, one or more feeders take in investors, and the master holds the portfolio and makes the investments. Managers commonly use it to give investors with different tax or regulatory needs their own vehicle while running a single pool of assets. For compliance teams the key consequence is that the master's investor of record is the feeder, while the people whose money it is sit one layer up.

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A typical offshore hedge fund example has a Cayman master, a Cayman feeder for non-US and US tax-exempt investors, and a Delaware feeder for US taxable investors. Similar patterns can also appear in other domiciles. Trading, financing and portfolio administration take place in the master; subscriptions, redemptions and investor reporting take place in the feeders. The structure avoids splitting a portfolio across parallel vehicles, but it creates more legal entities, each with its own constitutional documents, service-provider agreements and, in many regimes, its own regulatory filing.

How regulators define feeder and master funds

EU alternative funds. Article 4(1)(m) of the AIFMD (Directive 2011/61/EU) defines a feeder AIF as an AIF that invests at least 85% of its assets in units or shares of another AIF, the master AIF; invests at least 85% in more than one master AIF with identical investment strategies; or otherwise has an exposure of at least 85% of its assets to such a master AIF. The label matters: the Article 31 right of an authorised EU AIFM to market an EU feeder AIF to professional investors in its home Member State is subject to the master AIF also being an EU AIF managed by an authorised EU AIFM. A feeder that fails this condition falls outside Article 31 and needs another route, such as a national private placement regime under Article 36 where the Member State allows it.

EU retail funds. Under Article 58 of the UCITS Directive (2009/65/EC), a feeder UCITS is a UCITS approved to invest at least 85% of its assets in units of another UCITS, the master UCITS. It may hold up to 15% in ancillary liquid assets, derivatives used only for hedging, and, for an investment company, property essential to the direct pursuit of its business.

US registered funds. Section 12(d)(1)(E) of the Investment Company Act (15 USC 80a-12) disapplies the general limits on acquiring other funds' securities where, among other conditions, the security is the only investment security the acquiring fund holds, its depositor or principal underwriter is a registered broker-dealer or a person it controls, and an arrangement with the issuer imposes proxy-voting obligations and, for an unregistered acquirer, limits on substitution. The statute does not use the term, but this is the provision commonly associated with master-feeder arrangements for registered funds.

US private funds. Section 3(c)(1)(A) of the same Act looks through any company that owns 10% or more of the voting securities of a 3(c)(1) fund and is, or but for 3(c)(1) or 3(c)(7) would be, an investment company: the holders of that company are counted toward the 100-owner limit (250 for a qualifying venture capital fund). FinCEN's adviser rule preamble notes that this 10% look-through is not required for section 3(c)(7), but a company formed for the specific purpose of acquiring a 3(c)(7) fund's securities is a qualified purchaser only if each of its beneficial owners is one (17 CFR 270.2a51-3(a)). A feeder holding 10% or more of a 3(c)(1) master's voting securities is an obvious example of the first case, and a feeder formed to invest in a master may raise the second.

Cayman Islands. CIMA's page on categories of regulated mutual funds covers the master fund under its Registered Mutual Fund heading: a master fund must have either a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor or equity interests listed on an approved exchange.

Where investor KYC sits in a master-feeder structure

Layer	Who invests in it	AML question at this layer
Feeder fund (for example, a Cayman company or a Delaware limited partnership)	The end investors	Identify and verify the investors and their beneficial owners; screen them; assess source of funds where risk or the applicable rule requires it. Usually the main file sits here.
Master fund	One or more feeder funds, sometimes also the manager or direct investors	CDD on each feeder, including who performs CDD on the feeder's investors; a look-through or a documented exemption for the feeder; any direct investors treated in the ordinary way.
Manager, general partner and administrator	Not investors, but they run all the vehicles	Which entity is obliged where; who the AML officers are for each vehicle; which delegation or reliance arrangement applies.

This is a typical allocation; the obliged entity and the required measures depend on the regime.

The rules that decide how far a regulated firm must look through an investment vehicle such as a feeder differ by regime, and the firm obliged may be the master, the manager or the administrator:

Hong Kong. A financial institution may apply simplified due diligence to an investment vehicle if the person responsible for CDD-like measures on all its investors, which may be an appointed manager, administrator, transfer agent or similar institution, falls within the categories in section 4(3)(d) of Schedule 2 to the AMLO and the firm is satisfied that the vehicle has ensured reliable systems and controls. If neither the vehicle nor the appointed institution qualifies, the firm must identify and take reasonable measures to verify any investor under the beneficial-owner requirements, and depending on risk may consider relying on a written representation, which it should document and review periodically (SFC Guideline 4.8.9 to 4.8.12).
Singapore. MAS Notice SFA04-N02 removes the beneficial-owner inquiry for an investment vehicle whose managers are financial institutions listed in Appendix 1, or foreign institutions supervised to FATF standards (6.16(e)), unless the capital markets intermediary doubts the CDD information or suspects money laundering or terrorism financing, and it must document the basis where it relies on a foreign institution (6.17). Footnote 6 keeps the inquiry where the intermediary itself is the vehicle's primary manager, unless the interests are distributed by a qualifying financial institution. A Singapore manager of both feeder and master should therefore not assume that the exemption answers the question.
Cayman Islands. Part VI of CIMA's Guidance Notes treats investors as the mutual fund's applicants for business and says an investor that is a fund domiciled outside, but administered in, a country the firm assesses as low risk may fall within a scenario where SDD applies. Evidence may also be satisfactory if the investor's administrator is subject to AML oversight at home and confirms in writing that it holds verification evidence under that country's procedures (E.7, F.6, F.7). CIMA's AML FAQs for Funds say the AMLCO, MLRO and deputy MLRO appointments are "to the fund", and apply to regulated and unregulated funds conducting relevant financial business in or from within Cayman. The FAQs do not address master-feeder structures directly, but a master and its feeders are separate funds, so check that each Cayman fund in the structure has made its own designations.
European Union. From 10 July 2027, Article 61 of Regulation (EU) 2024/1624 sets the beneficial owners of a collective investment undertaking as natural persons holding directly or indirectly 25% or more of its units, or able to define or influence its investment policy, or controlling it by other means. The words "directly or indirectly" appear wide enough to cover a person holding through a feeder, although Article 61 does not mention feeders or say how an indirect holding is calculated.
United States. FinCEN notes that "the adviser's customer is typically the private fund itself" (89 FR 72156, footnote 45), and adds that in many cases an adviser has a relationship with underlying investors and access to information about them. The rule's effective date is currently 1 January 2028, and FinCEN has said it will use the delay to review the rule. Sanctions rules, including OFAC's aggregated 50 Percent Rule, do not wait for it.

Master-feeder compared with similar structures

Structure	How it works	How it differs
Master-feeder	Feeders pool investors and invest most or all of their assets, usually in one master, which holds the portfolio	One portfolio, several investor-facing vehicles
Parallel funds	Separate funds invest side by side in the same assets, each holding directly	No master; each vehicle holds its own investments
Fund of funds	A fund invests in several underlying funds, usually with different managers	Diversified across funds and often unaffiliated, and the investee fund may have less sight of the investors
Blocker	An entity placed between investors and a fund or investment for tax reasons	A tax layer, which may sit above or below the fund, or be the feeder itself

What compliance teams should do

1. Draw the structure and mark each entity. Show every feeder, master, general partner, manager and administrator, with the regulator and AML regime of each.

2. Apply one onboarding standard. We suggest using the strictest test across the structure: a Cayman feeder conducting relevant financial business, for example, applies a 10% beneficial-ownership test to legal-person investors even if the manager's home rule looks to 25%. Our LP onboarding checklist shows how to set it.

3. Document the master's view of each feeder. Record who performs CDD on feeder investors, the exemption or look-through used, and any investor whose indirect holding crosses a threshold. Our guide to KYC for fund of funds and nominee investors covers the routes, and the look-through approach entry explains the concept.

4. Monitor flows at both levels. Investor activity at the feeder drives capital movements at the master, so reconcile them, and make sure the administrator's responsibilities are clear at each layer.

Key points

A feeder pools investors and invests most or all of its assets in a master fund, which holds the portfolio
EU law sets an 85% test for feeder AIFs and feeder UCITS
A US 3(c)(1) fund counts through an investor that is, or but for 3(c)(1) or 3(c)(7) would be, an investment company and owns 10% or more of its voting securities
The master sees the feeder as its investor; the end investors' KYC usually sits at the feeder, and each regime decides how far the obliged entity must look through

How One Constellation helps

One Constellation gives fund managers, administrators and transfer agents an investor onboarding portal with identity verification, KYB and beneficial-ownership tracing across feeder and master layers, sanctions, PEP and adverse-media screening, investor risk rating, transaction monitoring of subscriptions and redemptions, and case management with STR workflows, so that one investor record supports every vehicle in the structure.

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Frequently asked

What is a master-feeder structure?+

A master-feeder structure is a fund arrangement in which one or more feeder funds take in investors and invest most or all of their assets, usually in a single master fund, which holds the portfolio and makes the investments. Managers commonly use it to serve investors with different tax or regulatory needs through separate vehicles while running one pool of assets.

What is a feeder fund?+

A feeder fund is a fund that invests most or all of its assets in another fund, the master. In the EU, the AIFMD defines a feeder AIF by an 85% test, and the UCITS Directive defines a feeder UCITS as one approved to invest at least 85% of its assets in a master UCITS.

What is the difference between a master-feeder fund and a fund of funds?+

A feeder usually invests in one master fund, typically run by the same manager, and the master holds the portfolio. A fund of funds usually invests in several underlying funds, often with different managers, to diversify. Parallel funds are different again: each vehicle invests directly, side by side, with no master.

Who does KYC in a master-feeder structure?+

Usually the investor file sits at the feeder, performed by the feeder itself or by an administrator or transfer agent, and the master does CDD on the feeder. How far the obliged entity must look through depends on the regime: Hong Kong allows simplified due diligence where the person responsible for CDD on all investors is a qualifying institution, and Singapore removes the beneficial-owner inquiry where the vehicle's managers are qualifying financial institutions. Each has conditions. Responsibility stays with the obliged entity even if the work is delegated.

Does a master fund have to be regulated in the Cayman Islands?+

CIMA's page includes master funds among the categories regulated under the Mutual Funds Act, with a minimum aggregate equity interest of CI$80,000 (US$100,000) purchasable by a prospective investor, or a listing on a stock exchange approved by CIMA. Whether a specific fund is a master fund depends on the definition in the Act, so take legal advice on your structure.

Sources

This entry is general information, not legal advice. Check the current text with the regulator before relying on it.

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