A hedge fund that invests capital mobilized from investors mainly in a specific fund (a central investment vehicle) such as a master fund. The money deposited into a feeder fund will be redirected and invested in a master fund. The master fund itself invests the money and the return on investment will be allocated to all of the feeder funds (the feeders). Typically, the master fund receives funds from a number of feeders. However, each feeder can have its own structure in terms of investment fees, minimum capital contribution, and net asset values. An individual feeder fund can invest its funds through more than one master fund.

The master-feeder structure (a two-tiered structure) is designed to gather and pool capital from local and overseas investors into an umbrella fund, that will be handled by a central advisory service.

The master fund is usually run as an offshore operation. However, and for taxation purposes, it can be taxed as a partnership between local and offshore investors (onshore and offshore capital providers). The mater fund’s income will be subject to pass-through taxation, whereby the onshore feeder fund can avoid a case of double taxation.