While the different needs of investors for tax- opaque and tax-transparent vehicles could be achieved by running parallel funds, a master- feeder fund structure enhances the critical mass of investable assets (which will be managed at the level of the master fund), and avoids the need for the investment manager to split trades or engage in rebalancing trades between the parallel structures (and for the fund to enter into duplicate arrangements with service providers and counterparties). Additionally, it creates greater economies of scale for the day-to-day management and administration of the fund, which generally leads to lower operational and transaction costs. If only a tax-opaque or tax-transparent vehicle is required in light of the intended initial and longer-term investor base, then a standalone vehicle with the appropriate tax characteristics should be sufficient and simpler. Single Cell or Umbrella Structure; Single vs. Multiple Strategies If the fund will have one investment strategy and one portfolio of assets, a single portfolio vehicle will likely be appropriate. If the fund is to run multiple portfolios of assets, an umbrella structure may be more appropriate (though in certain cases this could also be achieved through the establishment of differing classes and portfolios within the same structure). The umbrella structure allows an investment manager to run multiple strategies through one fund structure (with one set of service providers) without the need to establish separate fund structures for each strategy. Umbrella structures can reduce costs and documentation. However, in some situations, it will be more efficient (and attractive to investors) to run the different strategies through different fund vehicles, rather than an umbrella structure.
A number of jurisdictions have introduced structures that, as a matter of local law, offer segregation between different portfolios (or sub funds) and their assets and liabilities. Not all of these structures have been tested in the courts of other jurisdictions, including in the U.S. Where this is the case, there is a residual risk that such structure will not be enforceable. Another factor to consider is investor perception. Regardless of actual risk, investors might be cautious as to the risk of contagion between different portfolios or sub-funds where a portfolio or sub-fund suffers a loss and the ability for counterparties to claim against the The increase in hedge fund regulation and the associated costs of establishing a hedge fund management business have increased barriers to entry. This has encouraged a growing number of would-be start-up managers to use a third-party fund platform as an alternative to establishing their own fund structure. The term “platform” can be used simply to refer to multi-manager platforms where the portfolio manager joins an existing investment management business as a partner or employee to run a portfolio of assets or a fund. However, it can also be used to describe a third-party offering one or more of the following: ^ a fund vehicle, either a standalone fund or (more typically) a sub-fund of an umbrella fund structure, or the right to umbrella structure as a whole. Third-Party Fund Platforms manage a portfolio of assets within a fund “housing” multiple managers. In each case, the sub-fund or portfolio is likely to use common service providers and trading counterparties appointed over the structure as a whole; ^ initial seed capital; ^ business support, through shared resources and personnel, and perhaps office space; ^ marketing and distribution services for the fund; and/or
Master Fund Umbrella Vehicle
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