Master Feeder Funds in Luxembourg

Master Feeder Funds in Luxembourg

Updated on Tuesday 23rd May 2023

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A master feeder fund in Luxembourg is a legal structure that is used for raising capital. This type of fund works as cluster of funds, with one fund that centralizes the others into what is known to be a master fund. 
 
If you want to open a fund in Luxembourg as a master feeder fund, you can receive legal and financial assistance on this structure from our financial advisors.  
 

What is the structure of master feeder funds in Luxembourg? 

 
The master feeder funds must contain 2 basic categories of funds: 
 
  1. the master feeder fund; 
  2. the other feeder funds, which invest their capital and assets into the master feeder fund in Luxembourg.
 
When it comes to the 2nd category of funds, it is important to know that each fund can have different characteristics, which can differ in aspects such as: 
 
  1. the assets;
  2. the types of investors that have set up the feeder fund;
  3. the minimum investment; 
  4. the fee structure. 
 

What is the investment policy for a master feeder fund structure?

 
Investors who want to open a Luxembourg fund must know that the master feeder fund is regulated under the UCITS IV Directive, which prescribes 2 categories of assets pooling from the other feeder funds, and these are: 
 
  1. entity pooling;
  2. virtual pooling. 
 
Below, investors can find out some highlights that are important when opening an investment fund in Luxembourg as a master feeder: 
 
  • it is required that at least 85% of the feeder fund’s assets to be invested in the master feeder fund;
  • maximum 15% of the assets of the feeder can take the form of derivatives and cash;
  • for a cross-border master feeder fund that will operate in Luxembourg, a period of 2-4 weeks is required for the feasibility analysis; 
  • if everything goes well, the cross-border master feeder fund structure can be incorporated in Luxembourg in a period of 7-9 weeks. 
 
Please know that this fund structure must obtain an approval for operating in Luxembourg from the CSSF (the Supervisory Commission of the Financial Sector). 
 

Other characteristics of the master feeder structure in Luxembourg

 
With regards to the management of the master feeder funds, we mention that the master fund and the feeder funds in Luxembourg are allowed to have the same management company and auditory. 
 
Where the 2 categories of funds have different auditors, it is required to sign specific agreements for the disclosure of information. In some cases, the funds can have different ends of the financial years and when this happens, the auditor of the master fund must sign a report and present it to the feeders. 
 
With regards to the fees charged by both the master and the feeder, it is required that the investors of the fund will receive clear information about the fee policies of all funds. 
 
Please know that if you want to open a Luxembourg fund as a master feeder fund structure, you will be accepted if you are an institutional or retail investor. In the fund structure, at least one of the funds must operate as an UCITS in Luxembourg. 
 
The fund structure can operate as an umbrella fund system. Our consultants can provide more details on how to set up an umbrella fund structure and what are its main advantages.  
 

What are the main advantages of a master feeder fund structure in Luxembourg? 

 
There are many advantages for investment funds which organize themselves in this type of structure. Given that these funds are centralized under master feeder funds, this can have a positive impact on the overall costs of the funds regarding administration and management. 
 
Investors can also open a Luxembourg fund following this system given the long history these types of funds have in this country. Of course, there can also be tax and legal advantages. 
 
You are invited to contact our team of financial advisors for more information regarding the incorporation of a master feeder fund structure in Luxembourg.