Understanding feeder funds and how they work | Metrobank (2024)

FAQs

What is a feeder fund and how does it work? ›

A feeder fund (“Feeder”) is an investment vehicle, often a limited partnership, that pools capital commitments of investors and invests or “feeds” such capital into an umbrella fund, often called a master fund (“Master”), which directs and oversees all investments held in the Master portfolio.

In a feeder fund arrangement, all management fees and any performance fees due are paid by investors at the feeder fund level.

For example, if feeder fund A's $100 contribution and feeder fund B's $200 contribution provided the total investments to a master fund, then fund A would receive one-third of the master fund returns while fund B would receive two-thirds of the returns.

A Feeder Fund is a Unit Investment Trust Fund structure which mandates the fund to invest at least ninety percent (90%) of its assets in a single collective investment scheme (Target Fund).

The advantage of investing in a feeder fund is that it allows individual investors to access investments that they would not be able to access otherwise. It also allows investors to gain exposure in securities which are only available offshore.

A feeder fund is a type of investment fund that does the majority of its investments through a master fund, using a master feeder relationship. It is similar to a strategy called fund of funds, but the main difference is that the master fund does all the investing.

Annual fund operating expenses

These fees, also known as mutual fund expense ratios or advisory fees, typically are between 0.25% and 1% of your investment in the fund per year.

Most master-feeder structures have two feeder funds: one for U.S. taxable investors and the other for foreign investors and tax-exempt U.S. investors.

A good expense ratio, from the investor's viewpoint, is around 0.5% to 0.75% for an actively managed portfolio. An expense ratio greater than 1.5% is considered high. The expense ratio for mutual funds is typically higher than expense ratios for ETFs.

A feeder fund is largely controlled by its general partner, which is typically a new entity formed and controlled by the investment manager.

What is direct vs feeder fund? ›

With a feeder fund, you pay capital gains tax on both the Rand depreciation and the capital gain of the investment. With a direct offshore investment, assuming the investor is only invested in one currency, the capital gain is determined in the foreign currency and then multiplied by the exchange rate.

Today, we're going to discuss a product that is becoming increasingly popular with private credit fund sponsors—the rated note feeder fund. A rated note feeder allows insurance company investors to access a private fund's investment strategy in a manner that helps them meet their regulatory capital requirements.

A 3 fund portfolio is a diversified investment plan comprising three different kinds of assets, i.e., domestic stocks, domestic bonds, and international stocks. In this kind of investment, the investors can choose the asset allocation mix and the funds based on their financial objective.

The current Rule requires and, with the Proposals' amendments, would continue to require, a fund to invest at least 80% of its assets consistent with its name, but does not prescribe how the fund invests the remaining 20%.

Specifically, a fund is prohibited from: acquiring more than 3% of a registered investment company's shares (the “3% Limit”); investing more than 5% of its assets in a single registered investment company (the “5% Limit”); or. investing more than 10% of its assets in registered investment companies (the “10% Limit”).

A feeder fund is a type of investment fund that hedge fund investors put their money into, which then feeds into a master fund. The master fund, not the feeder fund, is what the hedge fund's investment advisor ultimately uses to invest in the market.

With a feeder fund, you pay capital gains tax on both the Rand depreciation and the capital gain of the investment. With a direct offshore investment, assuming the investor is only invested in one currency, the capital gain is determined in the foreign currency and then multiplied by the exchange rate.

While Feeder Funds “feed” into the main “Master Fund” which carries out all the investing activities, Parallel Funds invest alongside each other in the same portfolio investments. Parallel investment vehicles are generally formed to invest in and divest from the same investments at the same time as the main fund.

Feeder fund

It's a less complex way to invest offshore, as no SARS clearance is needed on the part of the individual. The investment minimums required are also generally lower than those for a direct offshore investment, making feeder funds more accessible to a broader market.