A fund derivative is a financial structured product related to a
fund Fund may refer to:
* Funding is the act of providing resources, usually in form of money, or other values such as effort or time, for a project, a person, a business, or any other private or public institution
** The process of soliciting and gathe ...
, normally using the underlying fund to determine the payoff. This may be a
private equity fund
A private equity fund (abbreviated as PE fund) is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity.
...
,
mutual fund
A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...
or
hedge fund
A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...
. Purchasers obtain exposure to the underlying fund (or funds) whilst improving their risk profile over a direct investment.
Example
For example, the purchaser may be attracted by a fund's star manager, performance history or strategy, whilst improving their counter-party risk and getting leverage, currency hedging or a
capital guarantee
A capital guarantee product means that when an investor buys, or "enters", this specific structured product
A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a singl ...
via the derivative.
Features
The structured product may be investible by retail clients or institutional investors that would not otherwise buy the fund, because of its provision of safeguard features such as capital guarantees or the appointment of independent administrators to calculate the underlying fund's value and additional oversight mechanisms.
Types
Typical fund derivatives might be a
call option
In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call Option (finance), option to exchange a Security (finance), security at a set price. The buyer of the call option has the righ ...
on a fund, a
CPPI on a fund, or a leveraged note on a fund. More complicated structures might include auto-call features guaranteeing that if the derivative reached a certain value that value was locked in, on top of an initial minimum value guarantee at issuance. Maturities might range from three to ten years, or more rarely multiple decades. The big players in this field are investment banks such as
Barclays Investment Bank
Barclays PLC (, occasionally ) is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services ...
,
BNP Paribas
BNP Paribas (; sometimes referred to as BNPP or BNP) is a French multinational universal bank and financial services holding company headquartered in Paris. It was founded in 2000 from the merger of two of France's foremost financial instituti ...
, TPG,
Citigroup
Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services company based in New York City. The company was formed in 1998 by the merger of Citicorp, t ...
,
Credit Suisse
Credit Suisse Group AG (, ) was a global Investment banking, investment bank and financial services firm founded and based in Switzerland. According to UBS, eventually Credit Suisse was to be fully integrated into UBS. While the integration ...
,
Deutsche Bank
Deutsche Bank AG (, ) is a Germany, German multinational Investment banking, investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York Stock Exchange.
...
,
Goldman Sachs
The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...
,
Macquarie Group
Macquarie Group Limited (), more commonly known as Macquarie Bank, is an Australian multinational investment banking and financial services group headquartered in Sydney and listed on the ASX ().
Macquarie's investment banking division is Au ...
,
Morgan Stanley
Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in 42 countries and more than 80,000 employees, the firm's clients in ...
,
Société Générale
Société Générale S.A. (), colloquially known in English-speaking countries as SocGen (), is a French multinational universal bank and financial services company founded in 1864. It is registered in downtown Paris and headquartered nearby i ...
,
UBS Investment Bank.
Fund derivatives have had explosive growth over the past 10 years but are still a major growth area. New structures are constantly being developed to suit market and client opportunities.
External links
Fund-linked DerivativesNomura wins Silver Award for Best Hedge-Fund Linked Certificate
Private equity
Derivatives (finance)
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