In this series. This note is about where the money is invested. Whether investors can redeem is open-ended versus closed-ended. How a redemption timetable actually works is liquidity terms. Who operates the vehicle is board, GP, manager, and administrator. The practice page is Cayman funds.

Sponsors often reach for “Cayman feeder” when the investor list is international. The phrase answers a different question from open-ended versus closed-ended. Open-ended versus closed-ended describes what an investor can require the fund to do with that investor’s own capital. Feeder versus parallel describes where the money is invested after it arrives. A fund can be open-ended and standalone, closed-ended and a feeder, or any other combination the assets will support. The combination has to be drafted. It is not implied by the jurisdiction.

A feeder invests into another fund

In ordinary fund speech, a feeder takes its investors’ money and invests it into another fund. The feeder’s investors obtain exposure through that fund interest, not through a separate portfolio of the underlying investments. The feeder’s own documents still have to say what those investors can do: redeem, or wait for distributions. That second question is the exit-rights question. Putting the word “feeder” on the chart does not answer it.

The Mutual Funds Act (2025 Revision) also uses “feeder fund” and “master fund” as defined terms, and they are narrower than the commercial shorthand. A feeder fund, in that Act, is a mutual fund that conducts more than 51 percent of its investing in a master fund, directly or through an intermediary. A master fund is a Cayman company, partnership, or unit trust that issues equity interests, holds investments and conducts trading for the principal purpose of implementing the feeder’s strategy, and has one or more regulated feeder funds. For purposes of the Act, that master fund is deemed a mutual fund. CIMA’s description of master-fund registration follows those conditions, including a minimum aggregate equity interest or a qualifying listing.

A vehicle that invests most of its assets in one other fund may be a feeder in conversation and still fail the statutory definition, or the other way around. When someone asks whether the master-fund registration route is available, the defined terms are the test. When someone asks whether investors are buying a portfolio or a fund interest, the commercial description is the starting point, and the documents have to be read. Qualified Cayman counsel applies the Cayman definitions. We coordinate the U.S. documents so they describe the same flow.

Parallel funds invest alongside each other

Parallel funds invest beside one another. Each holds its own positions. They are used when different groups of investors cannot, or should not, sit in the same vehicle: a Delaware vehicle for U.S. taxable investors and a Cayman vehicle for non-U.S. or tax-exempt investors is a familiar pattern, not a required one. The arrangements have to address allocation of investments and expenses, conflicts when one vehicle can take a deal the other cannot, and differences in liquidity or exit timing. A chart that shows one strategy does not mean the two vehicles can be paid, redeemed, or wound down on the same day.

A standalone fund does not need a feeder or a parallel vehicle merely because its investors live in more than one country. International investors are a fact about the offering. They are not, by themselves, a fact about fund architecture. Sometimes one vehicle, with a carefully drawn offering, is the structure. Sometimes it is not. The U.S. reasons a Cayman feeder is sometimes used for tax-exempt U.S. investors and for foreign investors — unrelated business taxable income and effectively connected income — are discussed in Why Institutional Funds Use a Cayman Feeder and in What Is ECI. Those notes explain a U.S. tax motive. They do not classify the fund as open-ended or closed-ended, and they do not mean every cross-border program needs a second entity.

This is also not the Cayman company that sits between a family and its assets. That holding-company stack is a different arrangement, described in The Cayman Sandwich. A feeder buys a fund interest. A sandwich company holds assets for a family or a trust. Using the same island for both does not make them the same structure.

Liquidity has to work through both layers

For a feeder, the investor’s liquidity is only as real as the underlying fund’s liquidity. Notice deadlines, valuation dates, and payment obligations at the feeder have to be supported by the terms on which the feeder itself can receive cash, or an in-kind asset it is allowed to pass on. A feeder cannot responsibly promise a cash payment on a date before it can obtain the proceeds from its investment. Matching the two timetables is a drafting discipline. It is not a promise that either vehicle is redeemable. If the underlying fund is closed-ended, redemption language in the feeder has to be read against that fact, not against the word “feeder.” The clocks themselves — request, valuation, and payment — are set out in Cayman Fund Liquidity Terms.

The same discipline applies to a parallel pair. If one vehicle permits redemptions and the other returns capital only at the end of a term, the allocation policy has to say what happens when one group of investors is leaving and the other is not. Shared expenses, follow-on investments, and a sale of the same asset at different times are the usual pressure points. They belong in the documents before the first closing, not in a side conversation after an investor asks for money back.

Compensation is charged where the documents say it is charged

Investors should be able to see charges at every relevant level. A management fee or a carried interest at the feeder, another at the master, an affiliate acting as administrator or as the underlying manager, and an offset that is supposed to prevent a double charge, are all part of the same economic question. A one-page chart of the strategy does not establish that compensation is charged only once. The offering materials have to identify who is paid, by which vehicle, and what is credited back. On the U.S. side, that disclosure sits with the subscription documents and the private placement materials. Cayman counsel reviews the Cayman constitutional and offering documents for the Cayman vehicle. The two sets have to match.

What to ask before the structure is frozen

  1. Does this vehicle hold investments, or does it hold an interest in another fund?
  2. If it is a feeder, do its notice, valuation, and payment dates work with the underlying fund’s dates, including a suspension or a gate at the lower level?
  3. If two vehicles invest in parallel, who decides allocation, and what happens when their liquidity or their investor lists diverge?
  4. Which statute’s defined terms, if any, is the sponsor trying to meet — including the Mutual Funds Act’s feeder and master definitions — and who is confirming that with Cayman counsel?
  5. Where is each fee charged, and which offset stops it from being charged twice?

Recalde Law leads the U.S. structuring and the U.S. fund documents for this kind of program, and coordinates with qualified Cayman counsel on the Cayman vehicle, the Cayman legal advice, and the registration. We do not practice Cayman law, and we do not hold ourselves out as a Cayman firm or as a formal partnership with any Cayman firm. A conversation about whether the program is a feeder, a parallel pair, or one vehicle starts on the Cayman funds page. The broader U.S. fund practice is Fund Formation.

Official references