Hedge Fund Structure Explained: SICAV, Master-Feeder and Share Classes

A hedge fund is not a single legal object. Behind the strategy sits a fund structure: the legal vehicle that holds the assets, the way investors from different countries are pooled, and the share classes that set currency, fees and liquidity for each investor group. This article explains the three building blocks investors meet most often — the SICAV, the master-feeder structure and share classes — and what each means for the investor.

What Is a Hedge Fund Structure?

A hedge fund structure is the legal and operational framework through which a hedge fund strategy is offered to investors. It defines who owns the assets, which law and regulator apply, how investors subscribe and redeem, and how fees and currencies are handled. Two funds can run the same strategy and still be very different products for an investor because their structures differ.

Most structures combine three layers. The first is the legal vehicle — for example a limited partnership, a company or a SICAV. The second is the pooling arrangement, such as a stand-alone fund, an umbrella with sub-funds or a master-feeder set-up. The third is the share class layer, which tailors currency, fees and terms within the same portfolio. For an introduction to the strategies themselves, see our guide Hedge Funds Explained.

What Is a SICAV?

A SICAV (société d’investissement à capital variable) is an investment company with variable capital: its share capital grows when investors subscribe and shrinks when they redeem, so shares are issued and cancelled at net asset value rather than traded between investors. The form is widely used in Luxembourg, and comparable investment companies with variable capital exist in other European jurisdictions, including Switzerland.

A SICAV is a legal form, not a strategy and not a regulatory label. The same SICAV form can house a UCITS fund for retail investors or an alternative investment fund for professional investors. Whether a fund is a UCITS or an AIF depends on the rules it follows — investment limits, liquidity, leverage, distribution — which we cover in Alternative Investment Funds (AIF): What They Are and How They Are Regulated.

Umbrella SICAV and sub-funds

Many SICAVs are set up as umbrella structures. One legal entity contains several sub-funds, each with its own portfolio, investment policy and share classes. In most modern umbrella structures, assets and liabilities are segregated by sub-fund, so the investors of one sub-fund are not exposed to the liabilities of another; the exact protection depends on the governing law and the fund documents.

Umbrella structures are why fund names often have two parts. In AltAlpha SICAV – Abacorum Fund, the first part names the umbrella vehicle and the second the sub-fund that runs the strategy. The domicile, share classes and terms of any specific fund are set out in its offering documents.

How Does a Master-Feeder Structure Work?

In a master-feeder structure, investors subscribe to one or more feeder funds, and the feeders invest all or almost all of their assets in a single master fund where the portfolio is actually managed. The manager runs one portfolio, while each feeder is tailored to a particular investor group, for example by tax status, domicile or currency.

A classic hedge fund example combines an onshore feeder for taxable US investors, often a limited partnership, with an offshore feeder for non-US and tax-exempt investors, both investing in an offshore master fund. All trading happens at the master level, so every investor gets the same portfolio and the manager avoids splitting trades across parallel accounts.

• One portfolio, several entry points: investors with different tax or regulatory needs access the same strategy.
• Efficiency: trading, risk management and counterparties are concentrated in one vehicle.
• Extra layer: two or more entities mean more administration, audits and documentation — costs that investors ultimately bear.

Master-feeder structures also exist in regulated European funds. Under the EU UCITS Directive, a feeder UCITS must invest at least 85% of its assets in units of a single master UCITS (Directive 2009/65/EC, Article 58).

Master-Feeder vs Fund of Funds: What Is the Difference?

A feeder fund is a pass-through: it invests in one master fund run by the same manager and adds no investment decision of its own. A fund of hedge funds invests in many different hedge funds run by different managers, and its value comes from selecting and combining them. The difference matters for fees, too: a feeder usually charges fees once, while a fund of funds adds its own fee layer on top of the underlying funds. The multi-manager approach is explained in our article on the multi-manager hedge fund, and single-firm platforms in Multi-Strategy Hedge Funds Explained.

What Are Share Classes in a Hedge Fund?

Share classes are different types of shares in the same fund or sub-fund. All classes own a share of the same portfolio, but each class can differ in currency, fee level, minimum investment, distribution policy or liquidity terms. The investment result before class-specific costs and currency effects is the same for every class.

Common share class features include:

• Currency: separate classes in USD, EUR or CHF, often with a currency hedge back to the investor’s base currency.
• Hedged vs unhedged: a hedged class reduces currency risk between the fund’s base currency and the class currency; the hedge has a cost and does not remove it completely.
• Accumulating vs distributing: accumulating classes reinvest income, distributing classes pay it out.
• Investor type and size: institutional classes with higher minimums and lower fees, and classes for other professional investors.
• Fee terms: classes with different management or performance fees, such as early-investor or founder classes.
• Liquidity terms: in some hedge funds, classes differ in lock-up or notice periods.

Because fees can differ by class, two investors in the same fund can earn different net returns. How management fees, performance fees, high-water marks and hurdle rates work is explained in Hedge Fund Fees Explained.

Why the Structure Matters to Investors

The structure decides who can invest and on what terms. It determines the regulator and investor protection, the currency and hedging available, how often money can be withdrawn and which tax treatment applies at fund level. The same strategy can be accessible in a regulated European format such as a UCITS — see our article on liquid alternative funds — or only to qualified investors in a private fund.

When reviewing a hedge fund, investors typically check:

• the legal form and domicile of the fund and of any master fund;
• whether the fund is a UCITS or an AIF, and which regulator supervises the manager;
• which share class is available to them, its currency, hedging and fees;
• subscription and redemption frequency, notice periods and any lock-up;
• the service providers — administrator, depositary or custodian, and auditor.

Practical access requirements, from eligibility to due diligence, are covered in How to Invest in Hedge Funds. For the Swiss perspective on fund structures and regulation, see Swiss Hedge Funds. Regulators also publish investor guidance on hedge fund vehicles, for example the US SEC’s Investor.gov overview of hedge funds.

Frequently Asked Questions About Hedge Fund Structure

What does SICAV stand for?

SICAV stands for société d’investissement à capital variable, an investment company with variable capital. Its capital changes as investors subscribe and redeem, and shares are issued and redeemed at net asset value. It is a legal form used for both UCITS and alternative funds.

Is a SICAV the same as a UCITS?

No. A SICAV is a legal form, while UCITS is a European regulatory framework. A SICAV can be a UCITS, but it can also be an alternative investment fund that follows different rules.

What is a master-feeder structure?

It is a set-up in which one or more feeder funds invest their assets in a single master fund where the portfolio is managed. Feeders are tailored to different investor groups, while all investors share the same underlying portfolio.

What is the difference between share classes?

Share classes of the same fund hold the same portfolio but differ in features such as currency, currency hedging, fees, minimum investment, distribution policy or liquidity terms. These differences can lead to different net returns for each class.

What is an umbrella fund?

An umbrella fund is a single legal entity that contains several sub-funds, each with its own portfolio and share classes. Assets and liabilities are usually segregated between sub-funds, as set out in the fund documents.

Read more about AQUIS Capital and the team behind it, explore the AQUIS Capital fund range, or contact the team with your questions.

This content is for general information only and is not financial, investment, tax or legal advice. Investments carry risk, including the possible loss of capital. Consult a licensed professional before making decisions.