The hub-and-spoke structure is a common organizational and operational framework used by investment companies, particularly in the context of mutual funds and exchange-traded funds (ETFs). This structure involves multiple investment vehicles, often referred to as “spokes,” that pool their assets and contribute them to a central investment vehicle, known as the “hub.” Each spoke remains individually managed, allowing for different investment strategies or mandates within the overall structure.

Key features of the hub-and-spoke structure include:

1. **Central Hub:**
– The central hub is the primary investment vehicle that receives contributions from multiple spokes. It serves as the core or master fund in the structure.

2. **Multiple Spokes:**
– Spokes are individual investment vehicles, each with its own investment strategy, portfolio manager, and set of investors. These spokes contribute their assets to the central hub.

3. **Cost Efficiency:**
– The hub-and-spoke structure is designed to achieve cost efficiencies by consolidating certain operational and administrative functions at the central hub. This can lead to economies of scale, reduced expenses, and potentially lower fees for investors.

4. **Asset Pooling:**
– Assets from the various spokes are combined at the central hub, creating a larger pool of assets. This can provide benefits such as improved liquidity, increased diversification, and potentially enhanced investment opportunities.

5. **Administrative Simplification:**
– The central hub often handles common administrative tasks, such as recordkeeping, reporting, and regulatory compliance. This administrative simplification allows individual spokes to focus on their specific investment strategies.

6. **Investor Choice:**
– Investors can choose to invest directly in one of the spokes, each representing a distinct investment strategy, or they may invest in the central hub, benefiting from the overall pooled assets.

7. **Tax Efficiency:**
– The hub-and-spoke structure may offer tax efficiencies, as capital gains and income generated by the spokes can be managed within the overall structure, potentially reducing tax implications for investors.

8. **Master-Feeder Structure:**
– The hub-and-spoke structure is sometimes referred to as a master-feeder structure, especially when used in the context of mutual funds or hedge funds. In this setup, individual funds (feeders) feed their assets into a central fund (master).

9. **Regulatory Considerations:**
– The structure must comply with regulatory requirements, and each spoke may need to adhere to specific investment guidelines and restrictions. Regulatory considerations vary based on the jurisdiction and the type of investment vehicles involved.

The hub-and-spoke structure is flexible and can be adapted to various investment strategies and asset classes. It is commonly used in the mutual fund industry, where a central fund (master) may have different share classes representing various investment strategies (spokes). Similarly, in the ETF space, multiple ETFs may be managed by a central ETF issuer.

While the structure offers several advantages, it also requires careful management to ensure proper oversight, compliance with regulations, and effective communication between the central hub and individual spokes. Investors should carefully consider the specific features and risks associated with any investment structure employing the hub-and-spoke model.