A new draft of the International Swaps and Derivatives Association's hedge fund-linked derivatives definitions begins to address what constitutes a fund event. This could be a key issue for dealers structuring fund-linked investment products. But the document, which will be issued this week, is mostly focused on valuation methodologies. ISDA's working group for fund derivatives definitions plans to discuss fund events in more detail at its next meeting, most likely within a month.
Tim Hailes, managing director and associate general counsel at JPMorgan in London and co-chair of the ISDA working group for the definitions, said representatives from about 20 firms began preliminary discussions of triggers and consequences of fund events at a meeting last week. Hailes said, the group will consider what happens if a fund manager goes insolvent or a fund switches investment strategies and what happens when an event occurs.
The definitions are for use in documenting over-the-counter equity derivative trades linked to funds, including private funds, hedge funds, mutual funds and exchange-traded funds. Hailes said the group hopes to publish the definitions by year-end.
