Fund Structure
Fund structures are legal frameworks that determine how investment capital is pooled, managed, and distributed. The structure chosen is influenced by factors such as the type of investors, the asset class being targeted, and specific tax and regulatory considerations. [1, 2]
Public fund structures
Mutual funds
- Open-ended funds: These funds continuously issue new shares to investors and redeem them upon request. They are valued once per day based on their net asset value (NAV).
- Closed-ended funds: These funds issue a fixed number of shares through a single initial public offering (IPO). Their shares then trade on a public stock exchange, where their market price is determined by supply and demand, not NAV.
- Exchange-traded funds (ETFs): ETFs are collections of assets that trade on an exchange, similar to individual stocks. Like open-ended mutual funds, new shares can be created or redeemed, but unlike mutual funds, their market price fluctuates throughout the trading day. [3, 4, 5, 6, 7]
These are investment funds issued by insurance companies, primarily in Canada. Though they operate similarly to mutual funds, they offer a principal guarantee upon maturity or death, ensuring investors receive a portion of their original investment back. [8, 9, 10, 11, 12]
Private fund structures
Limited partnership (LP)
This is the most common structure for private funds like private equity, venture capital, and hedge funds.
- General Partner (GP): The GP is the fund manager responsible for investment decisions and the fund's day-to-day operations. They have unlimited personal liability for the fund's obligations.
- Limited Partners (LPs): These are the passive investors, such as institutions or high-net-worth individuals, who provide the capital. Their liability is limited to the amount of their investment. [13, 14, 15, 16, 17]
This is a complex setup used by hedge funds and other private investment vehicles to accommodate different types of investors.
- Feeder funds: Multiple "feeder" funds pool money from different investor groups (e.g., U.S. investors, foreign investors, tax-exempt organizations).
- Master fund: All the feeder funds invest their pooled capital into a single, centralized "master" fund, which executes all the investments. This structure simplifies portfolio management and can offer tax advantages to specific investor classes. [18, 19, 20, 21, 22]
In this structure, a private fund manager establishes separate legal entities that invest alongside the main fund. This approach is used to accommodate specific regulatory, tax, or legal requirements of certain investors. [2, 23, 24]
Stand-alone fund
A simple fund that is self-contained and does not have sub-funds. These are typically used when the fund has a straightforward investment strategy or targets a homogeneous investor base. [18, 25, 26, 27]
Other notable structures
Umbrella fund
This is a single legal entity that holds multiple sub-funds or "compartments," each with its own distinct investment strategy. It is commonly used for mutual funds and allows a fund sponsor to offer a variety of strategies under a single corporate and regulatory umbrella. [25, 28, 29, 30]
Fund of funds (FoF)
An FoF is an investment vehicle that invests in a portfolio of other funds instead of directly in securities. This provides diversification across multiple fund managers and asset classes. [8, 31, 32, 33, 34]
Separately managed account (SMA)
An SMA is a custom portfolio created for a single, usually high-net-worth, investor. The assets are held in the investor's name and managed by a professional fund manager according to a tailored strategy. [35, 36, 37, 38]
AI responses may include mistakes.
[36] https://www.parametricportfolio.com/solutions/wealth-managers/custom-separately-managed-accounts
