UCITS IV master-feeder structures – general overview

Ucits IV brings master-feeder fund structures within the remit of the Ucits regime, around a decade and a half after they proved one of the stumbling blocks that led to the ‘Ucits II’ proposals being abandoned.
The new directive defines a feeder fund as one authorised to invest at least 85 per cent of its assets in another Ucits, It may hold up to 15 per cent in cash, derivatives for hedging purposes or property for its own use. Its status as a feeder fund is granted by the regulator of the country in which it is domiciled and should be granted within 15 working days of submission of the application.
A master fund must have a feeder fund as a unit-holder or shareholder, must not be a feeder itself, and must not invest in any feeder fund. If the master and feeder funds have different depositaries and auditors, they must enter into an information-sharing agreement, and if the funds have different accounting years, the auditor of the master fund must make a special report on the closing date of the feeder fund.
An agreement between the feeder and master funds is required to ensure that the feeder fund can meet its regulatory requirements and that any commission paid to the feeder as a result of its investment into the master fund is paid into its assets rather than to its management company.
The master fund must notify its home regulator of the identity of any feeder funds, and if the funds are domiciled in different countries, the master fund’s regulator must notify the feeder fund’s regulator of the investment. The feeder fund must reveal in its prospectus details of the investment objective or policy of the master fund, costs relating to the feeder fund’s investment and any tax implications.