DEFINITION OF 'HUB AND SPOKE STRUCTURE'
An investment structure in which several investment vehicles, while each remaining individually managed, pool their assets together by contributing to one central investment vehicle. The smaller investment vehicles are referred to as the "spokes" and the central investment vehicle is referred to as the "hub".
This is also called a "master-feeder structure".
INVESTOPEDIA EXPLAINS 'HUB AND SPOKE STRUCTURE'
Employing a hub and spoke structure can provide substantial benefits to managers of investment funds or similar investment vehicles.
The common key benefit is derived from tax savings created by the structure. U.S. investors who have taxable investments in off-shore investment companies will likely incur tax liabilities due to the offshore fund's (the spoke) classification as a passive foreign investment company (PFIC). However, the central investment fund (the hub) can avoid PFIC status, and when structured as a partnership with the spoke fund, insulate the investor from taxes that would otherwise be incurred on the spoke fund.
As well, hub and spoke structures provide economies of scale to their participating investment vehicles, which can further enhance the bottom-line returns for investors.
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