Home / Offering Memorandum / RISK FACTORS AND INVESTMENT CONSIDERATIONS / Counterparty Risk

18.77. Counterparty Risk

The Investment Compartments may enter into transactions in OTC markets, which will expose the Investment Compartments to the credit of their counterparties and their ability to satisfy the terms of such contracts. The Investment Compartments are subject to the risk of the insolvency of their counterparties such as broker-dealers, futures commission merchants, Credit Institutions or other financial institutions, exchanges or clearinghouses. For example, the Investment Compartments may enter into swap arrangements or other derivative techniques as specified in the relevant Supplements, each of which exposes the Investment Compartments to the risk that the counterparty may default on its obligations to perform under the relevant contract. In the event of a bankruptcy or insolvency of a counterparty, the Investment Compartments could experience delays in liquidating the position and significant losses, including declines in the value of their investment during the period in which the Company seeks to enforce its rights, as well as inability to realise any gains on its investment during such period and fees and expenses incurred in enforcing its rights. There is also a possibility that the above agreements and derivative techniques are terminated due to, for instance, bankruptcy, supervening illegality or change in the tax or accounting laws relative to those at the time the agreement was originated. In the event of failure of the counterparty the Investment Compartment may only rank as an unsecured creditor in respect of sums due from the issuer in question, meaning that the Investment Compartment may be unable to recover part or all of the assets exposed to that counterparty and any such recovery may be significantly delayed.