Fund Structure - GP/LP, Master-Feeder, and Vehicle Choice

By EC Assets Research Team, Fund Formation · Published 19 May 2026 · Updated 15 June 2026

Fund Structure — Fund structure determines the legal form, tax treatment, governance, and operational mechanics of an investment vehicle. For alternatives, the dominant structures are limited partnerships (GP/LP) and master-feeder arrangements across multiple jurisdictions.

Definition

Fund structure refers to the legal form, jurisdiction, governance, and operational mechanics of an investment vehicle. The structure determines how capital flows in, how investments are made, how returns are distributed, how taxes are calculated, what regulatory regime applies, and what rights each party has.

For institutional alternative-asset funds (hedge funds, private equity, venture capital, private credit, infrastructure), the dominant structural pattern is the general partner / limited partner (GP/LP) form. The GP manages the fund and assumes management responsibility (and unlimited liability for fund obligations, typically through a corporate GP entity). The LPs provide capital with limited liability (loss capped at committed capital) and limited control (no day-to-day management role).

Around this core GP/LP form, fund structures add layers to handle multi-jurisdiction tax efficiency, regulatory compliance, investor segregation, and operational requirements. The result is structures that look complex on a legal-entity org chart but reflect a relatively standard set of optimisations.

The GP/LP Core

The general partner / limited partner structure has three structural advantages over alternatives like corporations:

Tax flow-through. Partnerships are fiscally transparent. Income, gains, and losses flow through to partners pro-rata rather than being taxed at the entity level. For institutional investors, this avoids the double taxation that would apply to a corporate structure and preserves the tax character of underlying gains (long-term vs short-term, qualified vs ordinary).

Limited liability for LPs. Passive investors are protected from claims beyond their committed capital. This is similar to shareholders in a corporation but with the governance flexibility of a partnership.

Governance flexibility. The Limited Partnership Agreement (LPA) can structure economic terms, governance rights, and operational mechanics more flexibly than corporate documents allow. Different LP classes can have different fee terms, withdrawal rights, or information rights without creating different security classes.

The GP entity is typically itself a separate legal entity (LLC or limited partnership) to insulate the principals from unlimited liability. The investment manager - a third entity - is where the principals' compensation flows and where the management infrastructure sits.

Master-Feeder: Solving Multi-Jurisdiction

A typical institutional hedge fund handles three structural problems simultaneously:

1. US taxable investors need a US partnership structure to receive flow-through treatment without inadvertent foreign-investment tax complications
2. Non-US and US tax-exempt investors need an offshore corporation structure to avoid US tax-related operational issues (UBTI for tax-exempt investors)
3. The fund needs a single investment portfolio and a single set of trading decisions for operational simplicity

The master-feeder structure solves all three:

Each feeder owns a proportional interest in the master. The master makes the actual investment decisions and executes trades. Returns flow back to the feeders pro-rata, then to the investors within each feeder.

[!example] An institutional LP commits $50 million to a long-short equity hedge fund. The LP is a US tax-exempt foundation. Operationally: the foundation subscribes to the Non-US LP Feeder (Cayman). The Cayman feeder pools the foundation's capital with other tax-exempt and non-US investors and uses it to acquire shares in the Master Fund. The Master Fund holds the actual long and short equity positions. When the Master earns 12%, the Cayman feeder receives 12% on its master-fund stake, then the foundation receives 12% on its Cayman-feeder interest, less management and performance fees.

Open-End vs Closed-End

The choice between open-end and closed-end structure depends on the underlying strategy:

Open-end is operationally feasible only when underlying positions can be liquidated to meet redemptions without forced selling. Liquid hedge fund strategies (long-short equity, market-neutral, macro) fit this model. Illiquid strategies (private equity, venture capital, real estate) cannot offer interim liquidity without selling positions at distressed prices, hence the closed-end structure.

Fund Documentation

Three primary documents constitute a fund's legal foundation:

Limited Partnership Agreement (LPA). The binding legal agreement between the GP and LPs. Covers: capital commitments, fee structure (typically 1.5-2% management + 15-25% performance), distribution waterfall (preferred return, GP catch-up, carried interest), reporting, valuation policy, withdrawal/redemption mechanics, key-person provisions, defaults, transfers, indemnification, dissolution. LPAs run 100-300 pages.

Private Placement Memorandum (PPM). The investor disclosure document. Describes the investment strategy, risks, fund terms, conflicts of interest, principals' backgrounds, and regulatory considerations. The PPM is for disclosure; the LPA is for legal rights. Conflicts between the two are resolved by reference to the LPA.

Subscription documents. Investor-specific paperwork including subscription agreement, accredited-investor questionnaires, KYC/AML documentation, and tax certifications (W-9 for US persons, W-8 series for non-US persons). The subscription documents represent the LP's commitment to the fund and its agreement to the LPA.

Common Misconceptions

"Fund structure is just lawyer overhead." The structure determines tax treatment, regulatory regime, investor eligibility, and governance rights. A poorly designed structure can produce material tax inefficiency, regulatory issues, or governance disputes. The legal cost is small compared to the consequences of poor structure choices.

"Offshore = tax evasion." Substantially false. Offshore fund vehicles like Cayman master funds are fiscally transparent - they impose no entity-level tax precisely because they aim to be tax-neutral. Investors still pay tax on their proportional share of fund income in their home jurisdictions. The offshore structure prevents the fund from being taxed twice (entity + investor), not from being taxed at all.

"Master-feeder is unnecessarily complex." The complexity reflects genuine constraints: multi-jurisdiction tax efficiency, US tax-exempt UBTI considerations, regulatory regime alignment, and operational consolidation. A simpler structure would be possible if the investor base were homogeneous, but real institutional funds always have heterogeneous LPs.

References

1. CFA Institute. Alternative Investments. CFA Program Curriculum.
2. Institutional Limited Partners Association (ILPA). Private Equity Principles.