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The master-feeder structure allows asset managers to capture the efficiencies of larger pools of assets (see economics of scale) although fashioning investment funds to separate market niches.
Sometimes, especially when the feeders are hedge funds, this is a way of complying with the distinct legal systems of distinct jurisdictions. In other words, there will be an onshore feeder and an offshore feeder to the same master portfolio.
This is also sometimes called the hub and spoke structure.
For a U.S. taxable investor, the ownership of shares in what is known as a "passive foreign investment company" or PFIC can prove to be a very expensive proposition. The offshore feeder fund will almost always meet the definition of a PFIC, but the master fund will not, so the transaction is set up so that the master fund is a partnership for U.S. tax purposes, which makes it an effective insulation between the US based investor and that PFIC feeder.