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Fund derivative

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Title: Fund derivative  
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Subject: Compound option, Diagonal spread, Cliquet, Basket option, Conditional variance swap
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Fund derivative

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 obtain exposure to the underlying fund (or funds) whilst improving their risk profile over a direct investment.


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 via the derivative.


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.


Typical fund derivatives might be a Société Générale, 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 Derivatives
  • Nomura wins Silver Award for Best Hedge-Fund Linked Certificate

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