Fund derivatives

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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 mutual fund or a 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 be 3 to 10 years.

The big players in this field are BNP Paribas, Societe Generale, Barclays, Deutsche Bank, Citigroup, Credit Suisse, etc.

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.