• This article details the key components in the structuring and design of investment funds and how they impact the final outcome.
• The information is intended for asset managers looking to enter the investment fund industry.
• FlexFunds offers a securitization program designed to facilitate the structuring, distribution, and secondary market access for investment funds. For more information, please contact our experts.

For asset managers, investment funds are among the simplest and most effective alternatives to operate. However, to achieve this result, specialists must structure them properly, considering several key components.

Why is the design phase critical for the long-term success of investment funds?

A solid initial design is crucial for the operational efficiency and sustainability of an investment fund.

Aspects such as the choice of jurisdiction, the type of vehicle, or the configuration of the legal structure directly influence administrative complexity and associated costs.

Properly selecting the investment vehicle and defining effective share class segmentation helps reduce regulatory and tax burdens, contributing to mitigating legal risks and increasing operational agility.

The use of optimally designed vehicles facilitates the creation of tax-neutral structures, which are attractive to qualified investors seeking regulated and efficient frameworks to channel their capital.

Key components in investment fund structuring

The structuring of investment funds encompasses several key components:

Legal vehicles

• SICAV: An investment company with variable capital that issues shares. The investor is a shareholder and can influence general meetings.
• FCP (Common Contractual Fund): A contractual fund without legal personality, managed by a management company. Its capital is not a company but a pool of assets (common heritage).
• Cayman funds: In offshore jurisdictions like the Cayman Islands, exempted entities and flexible structures are used, taking advantage of tax neutrality.

Roles and responsibilities

• Management company: Administers the assets by investing capital according to the fund’s policy. It designs the strategy and executes investment orders, in addition to managing the fund’s internal accounting.
• Depositary/custodian: Safeguards and supervises the fund’s assets. It handles collections and payments, monitors the manager’s operations, and ensures regulatory compliance. It is separate from the manager to avoid conflicts of interest and ensure investor protection.
• External auditor: Independently reviews the fund’s accounting and financial statements, validating their integrity. Their role is key for credibility and the early detection of accounting risks.

Investment objectives and risk profile

A clear definition of the investment strategy and risk limits is fundamental. Key elements include:

• Fund objectives: These can focus on capital growth, income generation (dividends/coupons), wealth preservation, or combinations thereof. Defining them in the prospectus guides management toward these goals.
• Risk profile: The fund is classified as low, medium, or high risk based on volatility and accepted loss potential. In practice, this translates into specific limits. For example, “maximum X% in equities” for conservative funds or “up to Y% leverage” for aggressive funds.

Types of investment funds and their typical structures 

There are several types of investment funds with different structures:

Open-ended and closed-ended funds

Open-ended funds allow investors to enter or exit at any time at their Net Asset Value (NAV). The assets fluctuate based on continuous subscriptions and redemptions.

This requires high portfolio liquidity and clear daily valuation policies. They offer flexibility and liquidity to the participant but may face flow volatility and the risk of runs.

Closed-ended funds, by contrast, have fixed capital and a determined term. Investors cannot request redemption before maturity except under specific conditions.

Their assets remain constant until closure, providing greater operational stability and allowing investment in less liquid assets (such as real estate or private equity).

Private equity and hedge funds

Private equity and hedge funds are specialized investment vehicles.

Hedge funds seek returns over short or medium terms using strategies that capitalize on market movements, whereas private equity funds take stakes in unlisted companies with a vision spanning years or decades.

Furthermore, hedge funds often employ leverage and aggressive strategies (short selling, derivatives) to maximize gains, which increases the risk of loss.

In contrast, private equity risk stems from the nature of the portfolio companies (development stage, sector); while the long term reduces daily volatility, investments are much less liquid.

Fund of funds and master-feeder structures

Fund of funds (FoF) and master-feeder structures are ways to leverage investments in other funds.

A fund of funds invests in a portfolio of underlying funds, diversifying across multiple managers and strategies. This simplifies diversification, though it adds an extra layer of fees.

In contrast, a master-feeder structure consists of a main fund (master) and one or several subordinate feeder funds. Feeders attract different classes of investors (for example, an offshore feeder and an onshore feeder) and channel 100% of their capital into the master.

The advantage of the master-feeder structure is that it pools large volumes into a single portfolio, achieving operational economies of scale (lower trading and management costs). Additionally, each feeder can offer different conditions or currencies, attracting a broader range of diversified investors. 

Meanwhile, fund of funds do not channel their capital into a single master fund; rather, they distribute their investments among several underlying funds managed by different managers. Their primary goal is to diversify risks through multiple strategies and management styles. Unlike the master-feeder scheme, where different funds feed a common portfolio, the fund of funds acts as an independent vehicle that selects and allocates capital to various managers.

It is important to note that all investment funds, regardless of type or size, can be securitized to become exchange-listed products (ETPs) through companies like FlexFunds.

To learn more about FlexFunds’ products, please do not hesitate to contact our executives. We will be glad to assist you.

Fuentes:

• https://www.hamco.es/2025/08/01/guia-entender-politica-inversion-fondo/
• https://www.nnespana.es/blog/ahorro-inversion/inversion/cual-es-la-diferencia-entre-una-entidad-gestora-y-una-depositaria-en-un-fondo-de-inversion
• https://www.carmignac.com/es-es/faq/cual-es-la-diferencia-entre-una-sicav-y-un-fi-165
• https://www.harneysfiduciary.com/insights/cayman-funds-compliance-and-beneficial-ownership-reporting/
• https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/master-feeder-structure/
• https://www.rankia.com/diccionario/fondos-inversion/fondo-master-feeder