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Master s Trust What it is How it Works Types

Master s Trust What it is How it Works Types

Master’s Trust: What it is, How it Works, Types

What Is a Master Trust?

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

Key Takeaways

  • A master trust collectively manages pooled investments.
  • A portfolio manager oversees the assets in the master trust.
  • Employers can use a master trust structure for pooling investments in an employee benefit plan.
  • Employers often use a master trust to simplify the process of managing employee benefits and reduce management costs.

How a Master Trust Works

A master trust is a pooled investment vehicle that allows for the management of funds from multiple sources. A portfolio manager oversees the assets in the master trust. The accounting and reporting functions for a master trust are complex due to multiple investors and potential feeder funds.

A master trust is part of a comprehensive asset management scheme with a master-feeder structure. It is the master fund that collectively invests for associated feeder funds. In a master-feeder structure, assets are pooled, managed, and transacted from the master trust.

BlackRock, for example, is an asset manager with an array of master-feeder funds. Each fund has a master trust where assets are collectively managed. BlackRock’s Master Trust LLC strategy utilizes a master-feeder structure, with the Master Trust LLC as the master fund and feeder funds like BIF Treasury Fund and BBIF Treasury Fund.

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Other examples of BlackRock hub and spoke funds can be found at BlackRock Master Portfolios. Managing and trading assets collectively from a master trust helps keep fund operating costs low.

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

Overall, master trusts provide greater economies of scale. They allow a designated portfolio manager to manage assets in a collective fund, reducing management costs. Collectively pooling assets can also lower transaction costs.

Types of Master Trust

  • Unit Investment Trust: A unit investment trust (UIT) is a type of master trust that pools shareholder investments and typically includes diversified holdings managed to a specific strategy. A unit investment trust may have a specified duration with a predetermined maturity date.
  • Employee Benefit Plan: An employee benefit plan may choose to collectively manage assets for employees in a master trust. An employer can establish a master trust for which they and their employees collectively contribute investments, and the portfolio manager manages the assets. Companies may also choose to pool assets with other companies in a master trust with clear objectives and segregated reporting. Employers often use a master trust to simplify the process of managing employee benefits.

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