Home / Offering Memorandum / RISK FACTORS AND INVESTMENT CONSIDERATIONS / Derivatives

18.84. Derivatives

Other risks in using derivatives include the risk of differing valuations of derivatives arising out of different permitted valuation methods and the inability of derivatives to correlate perfectly with underlying securities, rates and indices. Many derivatives, in particular OTC Derivatives, are complex and often valued subjectively and the valuation can only be provided by a number of market professionals which often are acting as counterparties to the transaction to be valued. Inaccurate valuations can result in increased cash payment requirements to counterparties or a loss of value to an Investment Compartment. However, this risk is limited as the valuation method used to value OTC Derivatives must be verifiable by an independent auditor.

Derivatives do not always perfectly or even highly correlate or track the value of the securities, rates or indices they are designed to track. Consequently, an Investment Compartment’s use of derivative techniques may not always be an effective means of, and sometimes could be counterproductive to, following an Investment Compartment’s investment objective.