Delta-1 Certificates

– The “Leaner Feeder Funds”? –

Delta-1 certificates could be the more efficient alternative to access new distribution channels compared to Feeder Funds.

Master-Feeder Structures – the Ordinary Way to Feed your Fund

Most asset managers might probably be versed in using ordinary Master-Feeder Structures. These structures are commonly set up for international investment funds with the purpose to raise capital from investors of other jurisdictions. The ordinary structure is usually the following:

An asset manager operates a fund in a specific jurisdiction (the “Master Fund”). Depending on this jurisdiction, the fund can only be bought by certain investors. For instance, funds being domiciled in the Cayman Islands, are usually not accessible for investors domiciled in the EU. Therefore, in order to give those investors access to the Master Fund, asset managers launch a second fund in another jurisdiction (e.g. Luxembourg) with the sole purpose to invest into the Master Fund at the Cayman Islands (the “Feeder Fund”).

As this Feeder Fund is now domiciled in another jurisdiction than the Master Fund, also its target investor group is different. Therefore eventually, the Master Fund’s distribution network becomes extended by the EU .

Master Fund & Feeder Fund

As Feeder Funds’ only purpose is investing in their respective Master Fund, they basically replicate the performance of the Master Fund as good as possible. However, Feeder Funds might still differ from its Master Fund in several criteria such as:

  • Their fee structures.

  • Their target investor group.

  • Their minimum investment volume.

  • Their lock-up periods.

  • Their net asset values (NAV).


Nevertheless, if there are no additional fee layers (such as an additional management fee), the performance of Feeder Funds is close to their Master Funds. In fact, as Feeder Funds give access to new potential investors, by increasing the Master Fund’s volume, they even can eventually help to reduce the Master Fund’s overall total expense ratio / cost ratio.

Delta-1 Certificates – Feeder Funds’ Lean Version

Master Funds do not necessarily have to be fed by regulated Feeder Funds, but also can be fed by other investment vehicles.

Such an investment vehicle issues Delta-1 certificates (“Delta-1”)which is initiated under the Luxembourg Law of 22 March 2004 on securitisations (“Securitisation Law”). They are linked 1:1 to the value of the underlying asset, which is the Master Fund in those feeder structures. The main distinction from ordinary Feeder Funds is that those Delta-1s are issued by an unregulated investment vehicle. Due to this they can be set-up faster and more cost-efficient compared to ordinary Feeder Funds (for private placements).

Moreover, the high degree of investor protection persists due to the robust legal framework in Luxembourg. ( issuer default risk, limited recourse, non-petition etc.).

Changing Regulatory Framework? No Reason to Worry!

Although Delta-1s and other securitisation vehicles initiated under the Securitisation Law are an unregulated form of investment vehicles, they are nevertheless subject to recent European directives. Therefore, when initiating a Delta-1, issuers also have to consider new legal frameworks such as the Anti-Tax Avoidance Directive (“ATAD”) which became effective as of the beginning of 2019. It is ATAD’s goal to limit tax avoiding structures which e.g. might exist in some large holdings. However – intended or not – some securitisation structures are also affected by this new framework. Although Delta-1s’ sole purpose is tracking the performance of its underlying assets (such as Feeder Funds), they might also be affected by ATAD. Nevertheless, even in the new regulatory framework, von der Heydt can offer its institutional clients proven solutions for Delta-1 trackers.


Maximilian Portenlänger
Business Management
Bankhaus von der Heydt – since 1754
Tel: +49 89 2060657-62
Fax: +49 89 2060657-10
Widenmayerstr. 3 | 80538 Munich, Germany|