Hedge fund structures: 11 diagrams and examples

Data from the SEC Private Fund Statistics for 2025 Q4. Statutes and standards read on 11 October 2026.

The short answer

A hedge fund structure is the set of legal entities, compartments, share classes and accounting conventions through which investors reach one portfolio. Three questions decide it: who the investors are (taxable, tax-exempt, resident or not), where the fund may lawfully be offered, and how fees and performance are shared between investors who came in at different times.

Most managers with both US and non-US investors use a master-feeder structure with a Cayman master. The data agree: Cayman funds hold 54.2% of the net assets of the largest US-reported hedge funds, US funds 36.5% (SEC, 2025 Q4). Inside one fund, share classes separate fee terms, series accounting or equalisation separate entry dates, and a side pocket separates assets that cannot be valued or sold on the normal dealing terms.

Key figures

Cayman Islands funds held 54.2% of the net assets of qualifying hedge funds at the end of 2025, US funds 36.5%, Luxembourg 2.9% and Ireland 2.1% (SEC, Private Fund Statistics 2025 Q4, Table 3.1).
9,858 hedge funds reported on Form PF for 2025 Q4, with gross assets of US$14.4 trillion and net assets of US$6.0 trillion (SEC, Tables 1.1, 2.1 and 2.3).
Gross assets were 2.4 times net assets at the end of 2025. This is our calculation from the same tables, and a rough measure of leverage across the industry.
A qualifying hedge fund has net assets of at least US$500 million counted together with its feeder funds, parallel funds and dependent parallel managed accounts. The 2,178 qualifying funds are 22% of hedge funds by number and 81% by net assets (OFR definition; our calculation from SEC Tables 1.1, 1.2, 2.3 and 2.4).
A Cayman master fund with a regulated feeder must itself register with CIMA, with a minimum subscription of CI$80,000, about US$100,000 (Mutual Funds Act (2025 Revision), ss. 2, 4(3) and 4(4A)).

Where hedge funds are domiciled

Form PF is filed with the SEC by registered advisers with at least US$150 million of private fund assets, so it covers US managers and non-US managers registered in the US, not the whole world. The figures are reported by the managers and published in aggregate by the SEC.

Domicile of hedge funds, percent of net assets, 2025 Q4

Qualifying hedge fundsAll private funds

Cayman Islands
54.2%
29.7%
United States
36.5%
54.6%
Luxembourg
2.9%
5.5%
Ireland
2.1%
3.3%
British Virgin Islands
1.6%
0.5%
Bermuda
1.4%
0.9%
Other
1.2%
5.5%

Qualifying hedge funds against all private funds reported on Form PF. Source: SEC, Private Fund Statistics 2025 Q4, Table 3.1. For all private funds the United Kingdom (0.9%) is included in Other.

Hedge funds are far more often offshore than private funds as a whole: private equity funds, by contrast, are mostly domiciled in the United States (60.7% of their net assets).

Hedge funds on Form PF: gross and net assets, US$ trillion

Gross assetsNet assets

12.1

5.3

12.8

5.4

13.5

5.7

13.9

5.9

14.4

6.0

2024 Q42025 Q12025 Q22025 Q32025 Q4

Hedge funds on Form PF: gross and net assets, US$ trillion
	Gross assets	Net assets	Gross to net
2024 Q4	12.09	5.34	2.27×
2025 Q1	12.79	5.43	2.35×
2025 Q2	13.53	5.66	2.39×
2025 Q3	13.93	5.86	2.38×
2025 Q4	14.42	5.99	2.41×

All hedge funds reported on Form PF. Source: SEC, Private Fund Statistics 2025 Q4, Tables 2.1 and 2.3. Ratio: our calculation.

The 11 structures, one by one

The first five describe how entities are arranged; the next two, compartments inside one entity; the last four, tools used inside a fund. Amounts are illustrations, not data.

1. Standalone fund

Definition. A standalone fund is a single legal entity that takes subscriptions from investors and holds the portfolio itself, with one net asset value.

Example

Three investors subscribe $60m, $30m and $10m to Hedge Fund Ltd. The fund holds $100m of equities, bonds and derivatives; each investor owns 60%, 30% and 10% of the same NAV.

Figure 1. Three investors, one entity, one NAV, one portfolio.

Why it is used: It is the simplest and cheapest structure, and the usual starting point for a manager whose investors share the same tax profile: all US taxable investors in a Delaware partnership, or all non-US investors in a Cayman company.
Legal basis: In the United States the fund avoids registration under the Investment Company Act by relying on s. 3(c)(1) (no more than 100 beneficial owners) or s. 3(c)(7) (qualified purchasers only). An open-ended Cayman fund registers with CIMA under s. 4(3) of the Mutual Funds Act.
Accounting: One set of financial statements, prepared as an investment company under ASC 946 or as an investment entity under IFRS 10: investments at fair value, no consolidation.
What to watch: Mixing investor types in one vehicle makes it inefficient for one of them. A partnership can draw non-US investors into US filings; a corporation is a passive foreign investment company (PFIC) for US taxable investors, with punitive default treatment under ss. 1291 to 1298 of the Internal Revenue Code.

2. Master-feeder structure

Definition. In a master-feeder structure, investors subscribe to one or more feeder funds, and the feeders invest substantially all of their assets in a single master fund that holds the portfolio.

Example

US taxable investors put $60m into an onshore feeder, a Delaware limited partnership. Non-US investors and US tax-exempt investors put $40m into an offshore feeder, a Cayman company. Both feeders invest in a Cayman master of $100m. A gain of $10m at the master is allocated $6m and $4m.

Figure 2. Each investor group enters through its own feeder; one master holds the portfolio.

Why it is used: One portfolio, one set of trades, and each investor group in the vehicle that suits its tax position. US tax-exempt investors use the offshore company because it blocks unrelated business taxable income, which leverage would otherwise create under ss. 512 and 514 of the Internal Revenue Code.
Legal basis: Under the Cayman Mutual Funds Act, a regulated feeder is a fund that conducts more than 51% of its investing in a master, and a master with one or more regulated feeders must register under s. 4(3); the lighter route of s. 4(4)(a) is closed to it (s. 4(4A)).
Accounting: In US GAAP practice a feeder shows its investment in the master on one line, at its share of the master's net assets, and attaches the master's audited financial statements. The master carries the portfolio at fair value.
What to watch: Feeders can have different dealing terms, fees and investors, but they share the master's trading costs and liquidity. A large redemption through one feeder forces sales that the other feeder also bears.

3. Onshore and offshore funds

Definition. An onshore fund is established in the country of its main investors and is taxed and regulated there; an offshore fund is established elsewhere, usually in a tax-neutral jurisdiction such as the Cayman Islands, so that investors from several countries pay tax only at home.

Example

A New York manager runs a Delaware limited partnership for US taxable investors and a Cayman exempted company for non-US investors and US pension funds and endowments. Each fund has its own documents, its own administrator records and its own NAV.

Figure 3. Two funds, one inside the investors' country and one outside it.

Why it is used: The onshore partnership is transparent for US tax, which suits US individuals. The offshore company keeps non-US investors out of US tax filings; a fund that only trades securities for its own account stays within the trading safe harbour of s. 864(b)(2) of the Internal Revenue Code.
Legal basis: Onshore: the Investment Company Act exclusions and the Securities Act private placement rules. Offshore: the Cayman Mutual Funds Act or Private Funds Act, and in each country of the investors, the local rules on marketing a foreign fund, such as AIFMD in the European Union.
Accounting: Two separate sets of financial statements, often in the same currency and under the same framework, because they usually feed one master or follow one strategy.
What to watch: Offshore does not mean untaxed for the investor. The investor's country taxes the investor: the United Kingdom, for example, taxes gains on a non-reporting offshore fund as income under the Offshore Funds (Tax) Regulations 2009, and a bank onboarding a family will test where the fund is managed and who controls it.

4. Fund of funds

Definition. A fund of funds invests in other investment funds rather than directly in securities, so its NAV is built from the NAVs of the funds it holds.

Example

A fund of funds raises $100m and invests $40m in Fund A, $35m in Fund B and $25m in Fund C. If the underlying funds earn 10% gross, after their 2% and 20% fees and a further 1% and 10% at the fund of funds, the investor keeps 4.86%.

Figure 4. One NAV, built from three other funds' NAVs.

What the investor keeps in a fund of funds

Percent of capital, one year.

Gross return of the underlying funds10.00%
After the underlying funds' fees6.40%
After the fund of funds' management fee5.40%
Net to the investor4.86%

Illustration, not data. Assumptions: 10% gross return in the underlying funds; 2% and 20% fees there; 1% and 10% at the fund of funds; one year, fees on opening value, no hurdle.

Why it is used: Access to managers with high minimums or closed books, diversification across strategies, and manager selection and monitoring delegated to a specialist.
Legal basis: A registered US fund that buys other funds is limited by s. 12(d)(1) of the Investment Company Act; a UCITS may hold other funds only within arts. 50 and 55 of the UCITS Directive. A private fund of funds is governed by its own documents.
Accounting: The holdings are valued at the NAV reported by each underlying fund, the practical expedient of ASC 820-10-35-59, and that NAV often arrives weeks after the month end.
What to watch: Two layers of fees, and a liquidity mismatch: the fund of funds may promise monthly redemptions while an underlying fund can gate, suspend or side-pocket. The investor bears the gap.

5. Parallel funds

Definition. Parallel funds are separate funds, each with its own portfolio, that invest side by side in substantially the same positions, allocated between them in proportion to their size.

Example

A US fund of $60m and an offshore fund of $40m buy the same positions; the manager allocates every trade 60% and 40%. There is no master: each fund owns its securities directly.

Figure 5. Two funds, two portfolios, the same trades allocated 60/40.

Why it is used: When pooling in a master does not work: an asset that should be held directly by US taxable investors to keep the character of its income, a regulatory limit on one fund, or a strategy that one investor group may not hold.
Legal basis: Allocation between the funds is a matter of the adviser's fiduciary duty and its written allocation policy. Form PF counts parallel funds together with the main fund when testing the US$500 million qualifying hedge fund threshold.
Accounting: Two portfolios, two NAVs, two audits. The performance of the two funds drifts apart over time through the timing of subscriptions, rounding of allocations and positions one fund cannot hold.
What to watch: When an opportunity is too small to share, the allocation decides who gets it. Investors should see the allocation policy, and the auditor will test that it was followed.

6. Umbrella fund

Definition. An umbrella fund is one legal entity that contains several sub-funds, each with its own investment policy, investors and NAV, under a single board and a single set of constitutional documents.

Example

One Luxembourg SICAV contains an equity, a credit and a macro sub-fund. Each sub-fund has its own investors and portfolio, but the board, the depositary, the administrator and the auditor are shared.

Figure 6. One entity, one board, three sub-funds with their own investors and portfolios.

Why it is used: A new strategy can be launched as a new sub-fund without forming a new company, and fixed costs are spread across the sub-funds.
Legal basis: Luxembourg: art. 181 of the Law of 17 December 2010. Switzerland: arts. 92 and 94 of the Collective Investment Schemes Act. Cayman: segregated portfolio companies under Part XIV of the Companies Act. Ireland: the ICAV with segregated liability between sub-funds. A Luxembourg bill filed on 30 July 2026 (No. 8814) would extend compartments to unregulated SCS and SCSp partnerships; it is not yet law.
Accounting: The umbrella publishes one set of financial statements with separate statements for each sub-fund, often with a combined total in the umbrella's reference currency.
What to watch: The protection between sub-funds comes from the statute of the umbrella's country. A court in another country, or a counterparty that signed with the umbrella rather than with the sub-fund, may not respect it.

7. Sub-funds and segregated portfolios

Definition. A sub-fund (a compartment, or in Cayman a segregated portfolio) is a ring-fenced part of an umbrella entity with its own assets, liabilities, investors and NAV, so that the creditors of one sub-fund have no claim on the assets of another.

Example

Sub-fund A has a NAV of $50m, Sub-fund B $80m and Sub-fund C $30m. A counterparty that lent to Sub-fund B can claim only against B's assets, even if B's losses exceed its NAV.

Figure 7. Three compartments of one company; a creditor of B reaches B alone.

Why it is used: Separate strategies, investors or co-investment pockets inside one entity, with the risk of each kept away from the others.
Legal basis: In a Cayman segregated portfolio company the assets and liabilities of each portfolio are kept separate by s. 216 of the Companies Act, but a segregated portfolio is not a legal person: the company contracts on behalf of the named portfolio.
Accounting: Each sub-fund keeps its own books, NAV and share register. Costs that cannot be attributed to one sub-fund are allocated under the method stated in the prospectus.
What to watch: A contract signed without naming the portfolio can fall on the company's general assets. A lender or a bank will usually ask for an opinion of counsel on segregation before it extends credit to one portfolio.

Definition. Share classes are different categories of interest in the same fund and the same portfolio, which differ in their fees, currency, minimum, liquidity or eligibility, but not in what they invest in.

Example

In a $100m fund, Class A ($60m) pays 1.5% and 20%; the founders' Class F ($40m) pays 1.0% and 15%. On a 10% gross year Class A earns 6.80% net and Class F 7.65%, from the same portfolio. A third class in euros adds a currency hedge for its holders only.

Figure 8. Three classes, one portfolio; only the euro class carries the currency hedge.

Two classes on one portfolio, 10% gross year (illustration)
Class	Assets	Management fee	Performance fee	Net return
Class A	$60m	1.5%	20%	6.80%
Class F (founders)	$40m	1.0%	15%	7.65%

Fees on opening value, performance fee on the return after the management fee, no hurdle.

Why it is used: Different commercial terms for different investors without a separate fund: founders' terms, a currency class, a class closed to US "restricted persons" for new issues under FINRA Rule 5130, a class that limits benefit plan investors.
Legal basis: For UCITS, ESMA's opinion of 30 January 2017 requires a common investment objective, non-contagion, pre-determination and transparency; currency hedging at class level is allowed. For US benefit plan investors, the 25% test of 29 CFR 2510.3-101 is applied class by class.
Accounting: One portfolio, one set of assets, but a NAV per share for each class. Costs and gains that belong to one class, such as the result of its currency hedge, are allocated to that class alone.
What to watch: Contagion: if the currency hedge of one class loses more than that class's assets, the loss can fall on the others. Different terms for the same risk should be disclosed to every investor.

9. Series accounting

Definition. Series accounting issues a new series of shares at the same initial price for each subscription date, so that each investor's performance fee and high-water mark are calculated on that investor's own results.

Example

Series January is issued at 1,000 and rises 10% by June. Series June is issued at 1,000. The portfolio gains a further 5% to December, and a 20% performance fee is charged: Series January ends at 1,124, Series June at 1,040. Both are above their high-water mark, so Series June is rolled into Series January: 1,000 June shares become 925.27 January shares.

Figure 9. Each subscription date gets its own series; at year end the series are combined.

Series accounting over one year, per share (illustration)
Series	Issue price	Before fee, 31 December	Performance fee 20%	NAV after fee
January	1,000	1,155.00	31.00	1,124.00
June	1,000	1,050.00	10.00	1,040.00

January: +10% to June, then +5%. June: +5%. Roll-up: 1,000 June shares × 1,040 ÷ 1,124 = 925.27 January shares.

Why it is used: Without it, an investor who arrives after a gain would pay a fee on a gain earned before them, or escape a fee on a recovery. Series accounting is the most transparent of the methods; equalisation is the alternative that keeps one class and one NAV.
Legal basis: No statute imposes a method: the fund's articles or partnership agreement and the offering memorandum define the series, the roll-up and the crystallisation dates.
Accounting: The administrator computes a NAV per share for each series. After a bad year series below their high-water mark cannot be rolled up, and the number of NAVs multiplies.
What to watch: An investor sees a NAV that differs from the one published for the fund, and two investors in the same fund show different returns. That is the method working, but it must be explained in the reporting.

10. Side pockets

Definition. A side pocket is a separate class or account in which a fund holds illiquid or hard-to-value assets apart from its main portfolio, with its own valuation and no redemption until the assets are sold.

Example

A $100m fund moves a $10m stake in a private company into a side pocket. An investor who held 5% of the fund now holds $4.5m in the liquid class and $0.5m of side pocket shares. Investors who join later have no interest in the side pocket.

Figure 10. Every investor redeems from the liquid portfolio; only those present on the creation date share the side pocket.

Why it is used: Investors who leave cannot be paid out of the sale of an asset at a forced price, and new investors do not buy into a value that cannot be tested.
Legal basis: Directive (EU) 2024/927, which amends AIFMD, lists side pockets among the liquidity management tools available to open-ended alternative investment funds. Outside the EU, the fund's documents must provide for them: a fund that has not reserved the power cannot create one.
Accounting: The side pocket is measured at fair value under ASC 820 or IFRS 13, usually at Level 3, with its own NAV per share. Management fees are often charged on cost and the performance fee only on realisation.
What to watch: The manager values the asset that the investors cannot sell, and its fee may depend on that value. Read the cap on the size of side pockets, who values them, and when the investors must be paid.

11. Special purpose vehicles (SPVs)

Definition. A special purpose vehicle is a separate legal entity formed for one purpose: to hold one investment, to borrow against it, or to let co-investors take part in it, so that its assets and liabilities stay apart from the fund.

Example

A fund invests $20m and co-investors $10m in an SPV, which buys a stake in a private company. A bank lends to the SPV without recourse to the fund. If the investment fails, the loss stops at the SPV.

Figure 11. The fund and co-investors own the SPV; the lender reaches the SPV only.

Why it is used: Ring-fencing a risk, holding an asset that the fund's documents do not allow directly, sharing one deal with co-investors without admitting them to the fund, or financing a single position.
Legal basis: The SPV is an ordinary company or partnership in its own country. Where it is used to reach a tax treaty, the treaty's anti-abuse rules and the local substance tests apply to it.
Accounting: Under IFRS 10 an investment entity measures a controlled SPV at fair value through profit or loss (para. 31) unless the SPV provides investment-related services to the fund, in which case it is consolidated (para. 32). The result depends on control and on what the SPV does.
What to watch: Every SPV is one more entity to keep in good standing, file for under FATCA and CRS, audit and wind up. A bank will look through it to the fund and to the fund's own investors.

The 11 structures compared

Structure	Legal entities	Portfolios and NAVs	Main reason	Main risk
Standalone fund	One	One portfolio, one NAV	Simplicity, one investor profile	Tax inefficiency for mixed investors
Master-feeder	Two or more feeders and a master	One portfolio, one NAV per feeder	One portfolio for investors of different tax profiles	Shared liquidity between feeders
Onshore vs offshore	One per jurisdiction	One or more, one NAV per fund	Tax position of each investor group	Home-country tax rules on the investor
Fund of funds	One, invested in several funds	Portfolio of funds, one NAV	Access and diversification	Two layers of fees, liquidity mismatch
Parallel funds	Two or more	One portfolio and one NAV per fund	Assets that cannot be pooled	Allocation of scarce opportunities
Umbrella fund	One	One portfolio and one NAV per sub-fund	Launching strategies at low cost	Segregation not recognised abroad
Sub-funds	None of their own	Own portfolio, own NAV	Ring-fencing inside one entity	Contracts not signed for the portfolio
Share classes	None of their own	One portfolio, one NAV per class	Different commercial terms	Contagion from class-level hedges
Series accounting	None of their own	One portfolio, one NAV per series	Fair performance fees	Many NAVs, harder reporting
Side pockets	Usually none	Separate pool, own NAV	Illiquid or hard-to-value assets	Valuation by the manager, delayed exits
SPV	One per purpose	One asset or deal	Ring-fencing, co-investment, financing	Cost, look-through by banks

Three points often drawn wrong

Published diagrams of these structures repeat a few errors. Each matters in practice.

US taxable investors do not go through the offshore feeder

They normally invest through the onshore feeder, a partnership that is transparent for US tax. The offshore feeder is for non-US investors and for US tax-exempt investors who want to avoid unrelated business taxable income. A US individual in the Cayman company would hold shares of a passive foreign investment company.

In series accounting every series starts at the same price

Each new series is issued at the initial price, for example 1,000, not at the current NAV of an earlier series. Issuing later investors at the current NAV of a single class, with an adjustment for the performance fee, is a different method: equalisation.

A segregated portfolio is not a separate company

In a Cayman segregated portfolio company the company is the only legal person. The segregation of assets and liabilities is created by statute, and it holds only where each contract is made for a named portfolio. A separate SPV, by contrast, is a legal person of its own.

What to retain

The structure decides who can invest, how each investor is taxed, which regulator is involved and how NAV is calculated. It is chosen for the investors, not for the strategy.
Net asset value, assets and liabilities belong to an entity, a compartment, a class or a series. Always check which one a figure refers to.
There is no standard structure. The same strategy can sit in a standalone fund, a master-feeder or an umbrella, and the right answer depends on the investor base and the markets where it is offered.
IFRS, US GAAP and local GAAP can treat the same structure differently, notably feeders, SPVs and consolidation. Do not assume one treatment applies to every entity in the chart.

Documents to read before investing

The offering memorandum or private placement memorandum, for the structure chart, the dealing terms, the fees and the risk factors.
The articles of association or limited partnership agreement, which give the classes, series, side pocket powers and gates their legal force.
The subscription agreement and its investor representations: tax status, benefit plan status, new issue eligibility.
Side letters, and the most favoured nation clause if there is one. The SEC's 2023 rules on preferential treatment were vacated by the Fifth Circuit on 5 June 2024, so disclosure of side letters depends on the documents.
The latest audited financial statements of the fund and, for a feeder, of the master.
The administrator's NAV statement, to see which entity, class or series your NAV belongs to.

Frequently asked questions

What is the most common hedge fund structure?

For managers with US and non-US investors, a master-feeder with a Cayman master, a Delaware feeder and a Cayman feeder. The SEC does not publish counts by structure; its domicile data show Cayman funds holding 54.2% of qualifying hedge fund net assets at the end of 2025.

Why are so many hedge funds domiciled in the Cayman Islands?

The fund itself pays no income tax there, so investors from several countries are taxed only at home; CIMA's registration regime is established and familiar to banks, administrators and auditors; and the master-feeder model was built around it.

What is the difference between a master-feeder and parallel funds?

A master-feeder pools the money in one master that owns the portfolio. Parallel funds keep separate portfolios that hold the same positions, allocated between the funds by the manager.

What is the difference between a sub-fund and a share class?

A sub-fund has its own portfolio, separate from the other sub-funds. A share class shares the portfolio of the fund and differs only in its terms: fees, currency, minimum or liquidity.

What is the difference between series accounting and equalisation?

Both make each investor pay a performance fee on their own gains. Series accounting issues a new series for each subscription date; equalisation keeps one class and one NAV and adjusts each investor's position with an equalisation credit or a contingent redemption.

Can I redeem my side pocket shares?

Usually not until the asset is sold or the manager releases it. Side pocket shares are then redeemed or converted back into the liquid class, at the value realised.

Is a Cayman segregated portfolio a separate legal entity?

No. The segregated portfolio company is the legal person; each portfolio's assets and liabilities are kept apart by s. 216 of the Companies Act, provided contracts are made for the named portfolio.

Is there a Swiss equivalent of a lightly regulated hedge fund?

Since 1 March 2024 Switzerland has the limited qualified investor fund (L-QIF), arts. 118a and following of the Collective Investment Schemes Act: not approved by FINMA, for qualified investors only, and managed by an institution supervised by FINMA.

Primary sources

Statutes, regulators and standard setters only. Examples on this page are illustrations with stated assumptions.

Data

United States

Cayman Islands

European Union and Luxembourg

Switzerland

LPCC / KAG / CISA, SR 951.31, arts. 92 and 94, compartments; arts. 118a ff., L-QIF in force since 1 March 2024

Accounting and tax standards

Information only, not legal, tax or investment advice. Structures, their tax treatment and their regulation depend on the facts of each fund and each investor; take advice in each jurisdiction concerned.

Hedge fund structures: 11 diagrams, from master-feeder to side pockets

The short answer

Key figures

Where hedge funds are domiciled

The 11 structures, one by one

1. Standalone fund

2. Master-feeder structure

3. Onshore and offshore funds

4. Fund of funds

5. Parallel funds

6. Umbrella fund

7. Sub-funds and segregated portfolios

8. Share classes

9. Series accounting

10. Side pockets

11. Special purpose vehicles (SPVs)

The 11 structures compared

Three points often drawn wrong

US taxable investors do not go through the offshore feeder

In series accounting every series starts at the same price

A segregated portfolio is not a separate company

What to retain

Documents to read before investing

Frequently asked questions

Data

United States

Cayman Islands

European Union and Luxembourg

Switzerland

Accounting and tax standards

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