If you’re a high net worth investor interested in accessing private equity funds and venture capital funds, then you may have heard of something called a “feeder fund.” But what exactly is a feeder fund? Keep reading to learn everything you need to know.
A feeder fund is a type of investment fund that invests in another type of investment fund. For example, a feeder fund might invest in a private equity fund or venture capital fund. The advantage of investing in a feeder fund is that it allows investors to gain exposure to a wide range of underlying assets without having to invest directly in those assets.
Feeder funds typically have lower minimum investment requirements than the underlying funds they invest in. This makes them an attractive option for investors who want to diversify their portfolios, but don’t have the large amount of capital required to invest directly in private equity or venture capital.
Another advantage of investing in a feeder fund is that it can provide access to investments that would otherwise be unavailable to individual investors. For example, many private equity and venture capital firms have strict eligibility requirements that preclude most individuals from investing directly in their funds. These requirements are primarily to do with their administration of the fund and the servicing of the clients. However, by investing in a feeder fund, individual investors can gain indirect exposure to these types of underlying investments.
Feeder funds are popular because they offer investors the chance to achieve high returns through investing in these lower correlation, high return asset classes. However, these types of investments can also be very risky, which is why feeder funds are targeted at higher net worth investors with a higher risk tolerance.
What are the Benefits of Investing in a Feeder Fund?
There are many benefits that come with investing in a feeder fund, such as:
– Diversification: When you invest in a feeder fund, you’re automatically diversifying your portfolio since you’re investing in multiple underlying companies at once via the fund. This reduces your risk because if one company fails, you still have your investment in the other companies to fall back on.
– Access to Expertise: Another benefit of investing in a feeder fund is that you have access to the expertise of the fund manager. The fund manager will be experienced in investing in private equity and venture capital, which means they’ll know which companies are worth investing in and which ones aren’t.
– Pooled Resources: One of the main reasons why people invest in feeder funds is because it allows them to pool their resources together with other investors. This gives them access to investments that they wouldn’t be able to make on their own.
– Passive Income: Finally, another benefit of investing in a feeder fund is that it can provide you with passive income. Once you’ve made your initial investment, you can sit back and watch your money grow without having to do any work. The funds will typically distribute income back in the later years (harvesting period).
If you’re interested in investing in private equity, venture capital or infrastructure but don’t have the millions of investable wealth required to do so on your own, then investing in a feeder fund may be the right option for you. A feeder fund allows qualifying investors to pool their money together so that they can access these types of investments and achieve high returns. However, it’s important to remember that these types of investments are very risky, so make sure you understand all the risks involved before making any decisions.
At AssetTribe we love feeder funds. It solves the biggest problem our investors have: Access. We are able to bring qualifying investors carefully curated funds that they otherwise wouldn’t see and we are able to bring down the minimum investment thresholds to enable them to invest bite-sized chunks and to diversify their alternatives exposure.