Master-Feeder Structures: Benefits for U.S. Based Fund Managers

Introduction

Master-feeder structures offer U.S based asset managers a scalable, tax-aware solution to raise capital from international investors. These structures provide a centralised way to pool assets from different investor types U.S taxable, U.S tax-exempt and non-U.S. investors into a single trading portfolio. For managers targeting global growth, they remove the inefficiencies of running parallel funds and enable regulatory and operational segmentation without portfolio duplication.

The Problem: U.S Managers Face Friction When Raising Global Capital

U.S domiciled managers often find their growth constrained by regulatory and tax mismatches when trying to admit international capital. Without a proper framework, they are forced to choose between:

• Running separate funds for each investor group, which increases complexity and cost.
• Limiting investor participation to compatible jurisdictions, which restricts fundraising potential.

These limitations lead to fragmented AUM, duplicated operational processes and inconsistent performance outcomes across investor groups. Structuring challenges can delay time to market, burden internal teams and deter prospective allocators who expect streamlined onboarding and institutional-grade infrastructure.

What Is a Master-Feeder Structure?

A master-feeder structure is a two-tier fund system that consolidates capital from multiple sources into a single master fund that holds the portfolio and conducts all trading activity. The structure typically involves:

• A U.S investment vehicle (Delaware LP or LLC) for U.S taxable investors.
• An offshore investment vehicle (typically a Cayman exempted company) for non-U.S and U.S tax-exempt investors.

The master fund, often structured as a Cayman exempted company or partnership, executes the investment strategy for the entire capital pool. This enables performance consistency, operational efficiency, and scalability across borders.

Why Use a Master-Feeder Structure?

For U.S managers looking to grow internationally, the master-feeder structure addresses three core challenges:

• Investor segmentation: Each vehicle can satisfy different tax, regulatory, or geographic requirements without requiring multiple portfolios.
• Operational simplicity: Trading, custody and reporting are consolidated at the master level, reducing costs and friction.
• Fundraising scale: Managers can tap global allocators, sovereign wealth funds, family offices, insurers, banks, using a unified strategy while preserving local compliance.

Strategic Use Cases for Master-Feeder Structures

Hedge Funds and Credit Strategies

Hedge fund managers often use master-feeder setups to accommodate U.S and offshore investors under a single long/short or multi-strategy mandate. This structure simplifies portfolio hedging, leverage and derivative execution.

Private Equity and Venture Funds

Closed-ended managers serving international LPs often face blockers due to tax considerations. Master-feeder setups allow tax-exempt and offshore LPs to participate without necessarily triggering U.S tax liabilities.

Hybrid Funds and Multi-Asset Strategies

Funds combining liquid and illiquid components (e.g. credit + PE) can segment investor terms (e.g. liquidity, fees, governance) while preserving a unified risk-managed portfolio.

Global Distribution and ICSD Compatibility

International investment vehicles in a master-feeder structure can be admitted into International Central Securities Depositories (ICSDs) like Euroclear and Clearstream. This enables:

• Straight-through processing for subscriptions and redemptions.
• Nominee custody with clear beneficial owner tracking.
• Multi-currency support and electronic settlement.

ICSD integration unlocks access to institutional allocators that transact via global custodians or private banks, streamlining fund onboarding across regions.

Structuring and Legal Setup

A typical master-feeder setup includes:

• U.S Vehicle: Delaware LP or LLC (U.S. taxable investors)
• Offshore Vehicle: Cayman exempted company (non-U.S. and tax-exempt investors)
• Master Fund: Cayman company or ELP

Each entity requires its own offering documents, regulatory filings (e.g. CIMA registration for Cayman funds), and service providers (administrator, auditor, legal counsel).

Jurisdictional and Regulatory Considerations

Cayman remains the jurisdiction of choice for offshore and master funds due to:

• No direct taxation.
• Familiarity among global allocators.
• Regulatory clarity under the Mutual Funds Act or Private Funds Act.

Regulatory requirements include:

• CIMA registration and annual compliance.
• AML officer appointments.
• FATCA/CRS registration and reporting.
• Title verification and cash monitoring for closed-ended structures.

Conclusion

Master-feeder structures give U.S fund managers the toolkit to raise capital globally without compromising on operational coherence or investor experience. They support scalable fundraising, tailored investor access and centralised investment execution, making them the preferred model for global alternatives growth.

FundFront partners with asset managers to design, launch and operate compliant master-feeder structures with full-service administration, legal coordination and ICSD-compatible distribution. Contact us to explore how to simplify your global fundraising strategy.

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Articles that you may also be interested in:

• Comparing Cayman Islands Fund Structures: Exempted Companies, SPCs, LPs & More
• Cayman SPC: When and Why to Use Segregated Portfolio Companies
• Top 25 Service Providers in the Cayman Islands for Fund Managers
• How US Fund Managers Can Access an International Investor Base
• Key Steps to Efficiently Onboard and Manage Multiple Investors Globally Using ICSDs

Disclaimer

FundFront provides operational and technological solutions for fund structuring, securitisation and management. We do not provide legal, tax or financial advice. We recommend that you consult with professional legal or financial advisors to ensure compliance and appropriateness for your specific situation.