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.

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.