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CandleFocus Glossary Editor
The hub and spoke structure is a model commonly used among investment companies to reduce costs and maximize efficiency in trading. Investors entrust a core, or "home" portfolio, known as the "hub," with an overarching investment strategy to the master portfolio manager who is in charge of the entire structure. Satellite funds, known as "spokes," or "feeders," are each managed by a particular fund manager who creates and manages individual portfolios according to the hub's strategy.
Each spoke is essentially a portfolio of investments that is managed by one fund manager. These managers are responsible for individual fund performance. The funds within each spoke can be invested across a range of different asset classes and geographies, as well as being invested in different corporate and government bonds, stocks, derivatives and technologies. All of the funds within the spoke are managed according to the same general strategy.
The hub fund manager, meanwhile, is responsible for managing the overall portfolio on behalf of the investors. They invest the hub fund in such a way as to try to generate the best possible returns, while also making sure that the portfolio is managed in line with the original expectations of the investors. This means monitoring the performance of each spoke, and making sure that they are working within the same strategy. Depending on the needs of the investors, the hub fund manager may also periodically adjust the weightings of the spokes in order to ensure that the portfolio is balanced.
The advantage of this structure is that it allows for more efficient trading, with costs spread out between the individual managers managing their own portfolios, as well as the central hub fund manager. It also allows for the hedge funds to be managed in an integrated fashion, rather than on a piecemeal basis, which can help to reduce risk and improve returns. Furthermore, hub and spoke models are able to capitalize on the strengths of different fund managers and styles in order to generate the best possible returns for investors.
Each spoke is essentially a portfolio of investments that is managed by one fund manager. These managers are responsible for individual fund performance. The funds within each spoke can be invested across a range of different asset classes and geographies, as well as being invested in different corporate and government bonds, stocks, derivatives and technologies. All of the funds within the spoke are managed according to the same general strategy.
The hub fund manager, meanwhile, is responsible for managing the overall portfolio on behalf of the investors. They invest the hub fund in such a way as to try to generate the best possible returns, while also making sure that the portfolio is managed in line with the original expectations of the investors. This means monitoring the performance of each spoke, and making sure that they are working within the same strategy. Depending on the needs of the investors, the hub fund manager may also periodically adjust the weightings of the spokes in order to ensure that the portfolio is balanced.
The advantage of this structure is that it allows for more efficient trading, with costs spread out between the individual managers managing their own portfolios, as well as the central hub fund manager. It also allows for the hedge funds to be managed in an integrated fashion, rather than on a piecemeal basis, which can help to reduce risk and improve returns. Furthermore, hub and spoke models are able to capitalize on the strengths of different fund managers and styles in order to generate the best possible returns for investors.