Definition of master trust


What is a master trust?

A master trust is an investment vehicle that collectively manages joint investments. It can refer to the main fund where assets are grouped and managed collectively in a main-feeder structure, also called a hub-and-spoke structure. Employers can use a master trust structure to pool investments into an employee benefit plan.

Key takeaways

  • A master trust is an investment vehicle that collectively manages joint investments.
  • A portfolio manager is responsible for overseeing the assets in the master trust.
  • Employers can use a master trust structure to pool investments into an employee benefit plan.
  • Employers often use a master trust because it simplifies the process of managing employee benefits and keeps administration costs low.

How a Master Trust Works

A master trust is typically some type of joint investment vehicle that allows for the management of funds contributed by multiple sources. A portfolio manager is responsible for overseeing the assets in the master trust. The accounting and reporting functions of a master trust are often complex. This is because a master trust involves multiple investors and can include many subordinate funds.

A master trust is used as part of a comprehensive asset management scheme for a strategy managed with a master-feeder structure. Basically, it is the main fund that collectively invests in all associated feeder funds. In a principal-feeder structure, assets are grouped, managed and processed from the principal trust.

BlackRock, for example, is an asset manager with a variety of feeder master funds. Each of the funds has a master trust where assets are managed collectively. The investment company’s Master Trust LLC strategy uses a master-feeder structure. Master Trust LLC is the main fund and its subordinate funds include the BIF Treasury Fund and the BBIF Treasury Fund.

Other examples of BlackRock Hub and Spoke funds can be found at BlackRock Master Wallets. Managing and trading assets collectively from a master trust enables the company to keep the fund’s operating costs low.

Master trusts can be used to manage all types of portfolios.

In general, master trusts provide greater economies of scale. They allow a designated portfolio manager to manage assets in a pool, keeping management costs low. Asset pooling can also keep transaction costs low.

Types of main trust

  • Unit investment trust: A unit investment trust (UIT) can also be known as a type of master trust. These vehicles group shareholders’ investments and generally include diversified holdings managed according to a specific strategy. A unit investment trust can have a specific duration with a predetermined maturity date.
  • Employee benefit plan: An employee benefit plan may also choose to collectively manage employee assets in a master trust. An employer may establish a master trust to which they and their employees collectively contribute investments. The portfolio manager manages the assets collectively in the master trust. Companies can also choose to pool assets with other companies in a specified master trust with clear objectives and separate reports. Employers often use a master trust because it simplifies the process of managing employee benefits.
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Mark Holland

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