Feeder fund, fund of funds: both vehicles give access to private markets funds, but they do not meet the same need. A feeder fund gives exposure to a single strategy, while a fund of funds diversifies in a single solution. This guide defines each structure, compares how they work and sets out the points of attention for wealth advisers.
Discover the private equity, private debt and infrastructure funds available through Private Corner.
Why investment structures matter
Asset allocation strategies keep growing more sophisticated, and feeder funds and funds of funds now play a larger role in them. Originally reserved for institutional investors, these structures now interest informed private investors. Financial advisers therefore need to understand precisely how they work to serve demanding clients.
European regulation, notably the UCITS and AIFMD directives, has clarified the framework for these funds and imposed greater transparency. Knowing their regulatory and structural specifics now makes it possible to offer private investors solutions long reserved for institutions.
Definitions: feeder fund and fund of funds
What is a feeder fund?
A feeder fund (fonds nourricier in French) is an investment vehicle that places at least 85% of its assets in a single fund called the "master fund". Its purpose is to fully replicate the strategy of that master fund, which is often run by a specialist firm with a specific or diversified strategy.
The UCITS V directive requires feeder funds to be fully transparent about their strategy, risks and fees. ESMA (European Securities and Markets Authority) sets out the reporting obligations to investors, which ensures clear communication on the nature of the feeder fund.
Feeder fund and fonds nourricier: a point of terminology
"Fonds nourricier" is the French term for what the Anglo-Saxon market calls a feeder fund. In practice the two terms are synonyms, an equivalence widely accepted by European regulators and industry professionals.
Fund of funds: definition and how it works
A fund of funds (FoF) invests exclusively in several different funds, which creates immediate diversification. Unlike a feeder fund, it does not depend on a single master fund: it spreads its assets across several managers and investment strategies.
To learn more about how these vehicles work, see our dedicated page on private equity funds of funds.
Feeder fund vs fund of funds: the difference
Nature of the underlying portfolios
The core difference between a feeder fund and a fund of funds lies in their composition. A feeder fund invests entirely in one master fund, while a fund of funds is made up of several funds.
Management strategies: feeder fund versus fund of funds
A feeder fund is characterised by passive management, aligned with that of the master fund, because its value lies there: giving exposure to a single strategy, selected after lengthy due diligence. It gives the financial adviser a pure building block, from which they build their clients' portfolios according to specific needs.
A fund of funds, by contrast, rests on a selection of funds built around a defined strategy. It may be a diversified selection, exposed to different types of private markets assets (private equity, private debt, infrastructure), or a selection of several managers on the same "pure" strategy, such as buyout (LBO). The manager selects each underlying fund according to the orientation they have set and checks that the chosen funds complement one another.
| Feeder | FoF | |
|---|---|---|
| Underlying funds | A single master fund | Several funds |
| Exposure | A single strategy | Several strategies or several managers |
| Selection | Done upstream on the master fund | Done by the manager, who checks that the funds complement each other |
| Use for advisers | Pure building block for a tailor-made allocation | Diversification in a single solution |
| Due diligence | In-depth analysis of the master fund | Assessment of the underlying funds |
Our teams support advisers in choosing funds for their wealth clients.
Points of attention for financial advisers
To integrate these structures into a wealth strategy, several aspects need careful analysis.
Specific due diligence
- For a feeder fund, in-depth analysis of the master fund (performance, management team, ESG criteria).
- For a fund of funds, assessment of the underlying funds (track record, real diversification, correlations) where possible.
Regulatory transparency
Regulatory reports should be checked systematically to rule out any operational or compliance risk.
Controlling indirect fees
Potential indirect fees should be identified clearly and their real impact communicated to investors.
Key takeaways
- A feeder fund is assessed through its master fund, a fund of funds through its underlying funds.
- Both structures remain exposed to capital loss and the illiquidity inherent in private markets.
- Indirect fees must be disclosed to the client before subscription.
Strategic use of feeder funds and funds of funds
Why use a feeder fund?
A feeder fund gives private investors privileged access to private markets funds usually reserved for institutions, while benefiting from the master fund's expert management. It is a lever for targeted diversification and access to exclusive strategies. It is also the right tool when the financial adviser must build a tailor-made allocation for a wealth client.
Why choose a fund of funds?
A fund of funds suits investors looking for immediate, turnkey diversification. It makes it easier to gain exposure to a wide range of strategies and specialist managers.
Conclusion: choose according to the fund's role in the allocation
Feeder funds and funds of funds are two ways into private markets, with distinct logic: a pure building block to build on a tailor-made basis, or diversification delivered in a single solution. The right choice depends on the role the adviser assigns to the fund in the client's allocation, the due diligence carried out on the master fund or underlying funds, and the level of fees borne.
Talk through your project with our teams, or explore our private equity, private debt and infrastructure funds.
FAQ: feeder fund and fund of funds
How do you choose between a feeder fund and a fund of funds?
The choice depends on the end investor's profile and wealth objectives. A feeder fund suits a precise objective tied to a single fund, as part of a tailor-made portfolio, while a fund of funds suits investors who want diversification in a single solution.
Are fees always higher in a fund of funds?
Not necessarily, but a fund of funds often involves a layering of fees. A thorough analysis is essential to avoid excessive costs.
Are a feeder fund and a nourricier fund the same thing?
Yes. "Fonds nourricier" is the French term for a feeder fund. European regulators and industry professionals treat the two terms as synonyms.
What share of its assets does a feeder fund invest in its master fund?
A feeder fund invests at least 85% of its assets in a single fund, called the master fund, whose strategy it replicates.
Does a fund of funds depend on a single manager?
It depends on its investment strategy. A fund of funds invests in several underlying funds, which may be run by different management companies or by the same group. It can therefore diversify its exposure across several managers and strategies, or focus on a specific strategy, such as buyout (LBO). Diversification across managers is therefore not automatic.
