Feeder Fund

    graph TD;
	    A[Total Fund Capital] --> B[Feeder Fund A];
	    A --> C[Feeder Fund B];
	    A --> D[Feeder Fund C];
	    A --> E[Master Fund];
	    B --> F[Proportional Profit Distribution];
	    C --> F;
	    D --> F;

## What is the primary purpose of a feeder fund? - [x] To pool capital from multiple investors into a master fund - [ ] To operate independently without a master fund - [ ] To provide direct investments in stocks only - [ ] To generate occasional sales flyers > **Explanation:** Feeder funds exist specifically to pool capital, which is then aggregated into a master fund for enhanced management and efficiency. ## How are profits from the master fund distributed? - [x] Proportionately based on each feeder's capital contribution - [ ] According to luck of the draw - [ ] Equally among all feeder funds, regardless of investment - [ ] Only to those who attended the last fund meeting > **Explanation:** Profits are distributed to each feeder fund in relation to the percentage of capital they provided, ensuring fairness and proportionality. ## What typically provides the management for a master fund? - [ ] An AI algorithm with questionable judgment - [x] A single professional investment advisor - [ ] Random family members of the fund manager - [ ] An online poll among investors > **Explanation:** A qualified investment advisor usually manages the master fund, efficiently handling the investments across diverse feeder funds. ## Can an individual investor directly invest in a master fund? - [x] No, investments usually must occur through feeder funds - [ ] Yes, with a special handshake ritual - [ ] Only if they dress as the “Master of Funds” - [ ] Yes, but only on Tuesdays between 3 PM and 5 PM > **Explanation:** Generally, individual investors must go through feeder funds to access the master fund. ## What is one of the main advantages of a master-feeder structure? - [ ] Gain access to therapy sessions - [ ] Lower operating and trading costs due to pooled investments - [x] Larger portfolio benefits from economies of scale - [ ] A fancy name that impresses friends > **Explanation:** The master-feeder structure allows smaller funds to benefit from lower fees and greater investment breadth, effectively leveraging economies of scale. ## Why do hedge funds commonly use the master-feeder structure? - [x] For strategic capital management and cost reductions - [ ] To confuse new investors - [ ] To make their accountants happier - [ ] Because it's a trend everyone is following > **Explanation:** Hedge funds adopt this structure primarily to efficiently handle multiple investments and consolidate resources. ## What happens if a feeder fund’s capital decreases? - [ ] The feeder fund goes into a refocusing phase and seeks counseling. - [ ] They must eat ramen noodles for lunch. - [x] Their share of profits decreases relative to other feeders. - [ ] They hold a party to celebrate their losses. > **Explanation:** If a feeder fund’s contributions drop, its proportional share of the master fund’s profits will also decline. ## Why is pooling investments beneficial in the context of feeder funds? - [x] It provides investors access to diversified portfolios with reduced fees. - [ ] It allows for more social events and fundraisers. - [ ] It gives the investment manager a reason to throw out their spreadsheets. - [ ] It teaches math to finance professionals. > **Explanation:** Pooling investments allows each investor access to better management and greater diversification while reducing individual costs. ## What is the relationship between feeder funds and economies of scale? - [ ] They are opposites that attract! - [ ] They are like peanut butter and jelly on the investment sandwich! - [x] Pooling resources leads to reduced operation costs and larger portfolios. - [ ] They're just two great ideas that never get together. > **Explanation:** By pooling funds together, it creates a larger operational scale that leads to various cost advantages for each feeder fund. ## How would you describe feeder funds to your friends? - [ ] Very complex and not for faint-hearted investors. - [x] They are groups of small fund pals that turn their pennies into dollars by joining forces! - [ ] As a ploy to gather people around share coffee and chit-chat. - [ ] A sophisticated way to gamble on Wall Street! > **Explanation:** Feeder funds are simply a way for smaller investors to join their resources together for better investment outcomes while having some fun along the way!