What Is a Feeder Fund?

By Kristi Waterworth – Updated Dec 31, 2024 at 4:25 PM

Key Points

Feeder funds pool investor money to invest in master funds, reducing individual research needs.
Understanding feeder and master fund structure helps assess potential risks and returns.
Low fees and diverse investor access are key benefits of investing in feeder funds.

Hedge funds can provide solid investment options for many people. However, before you jump in, make sure you understand the terminology so you know what you're buying. For example, if you're looking at an investment that follows a master-feeder structure, things can get really confusing very fast.

The feeder fund is a vehicle through which you put your money into a hedge fund's combined cash to invest, which is then spent on investing in shares of a master fund. Read on to learn more about this process.

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A pile of cash funds. — Image source: Getty Images.

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Master funds, on the other hand, are where the investing actually happens. These funds hold investments, such as commercial real estate, a diversified portfolio of stocks, or a highly diversified basket of other assets. Feeders are called feeders because they tend to feed their capital into master funds.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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