Fund derivative

"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."

A fund derivative is a financial structured product related to a fund, normally using the underlying fund to determine the payoff. This may be a private equity fund, mutual fund or hedge fund. Purchasers might want exposure to a fund to get exposure to a star fund manager or management style as well as the asset class.

Typical fund derivatives might be a call option on a fund, a CPPI on a fund, or a leveraged note on a fund. More complicated structures might be a guarantee sold to a fund that ensures it cannot fall in value by more than a certain amount. Maturities might range from three to ten years. The big players in this field are BNP Paribas, Societe Generale, Barclays, Deutsche Bank, Citigroup, Credit Suisse, etc.