Feeder funds are unit trust funds that, apart from cash, may only hold units or shares in another unit trust fund. The fund in which the feeder fund invests is known as the master fund or sometimes as the target fund.
The feeder fund is a passive investment strategy. The master fund, in contrast, conducts all the trading activity and owns the underlying investments. Master-feeder structures are commonly used for cross-border investment arrangements.
Abroad, master-feeder fund structures are typically for hedge fund arrangements with one offshore master fund and often many feeder funds in different jurisdictions. Investment managers with similar products in several countries might use master-feeder structures to achieve cost reductions for economies of scale.
In South Africa, feeder funds are almost exclusively used to invest in offshore funds under South Africa’s exchange control regulations. Foord uses feeder funds to invest into its Foord global funds in Luxembourg and Singapore. In 2013, the Guernsey-domiciled Foord International Trust became a feeder fund of the Luxembourg UCITS fund, Foord International Fund.
