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NAV trigger: Difference between revisions
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{{a| | {{a|negotiation|}}The right to terminate a {{tag|master agreement}} as a result of the decline in [[net asset value]] of a [[hedge fund]] counterparty (other counterparty types generally won't have a “[[net asset value]]” ''to'' trigger). | ||
Often there are three levels of trigger: '''Monthly'''; '''Quarterly''' and '''Annually'''. You may find yourself embraced in a tedious argument about whether these should be “rolling” (that is, judged for the period from any day) or “point-to-point” (that is, judged from a defined day to the end of the period following that day). | Often there are three levels of trigger: '''Monthly'''; '''Quarterly''' and '''Annually'''. You may find yourself embraced in a tedious argument about whether these should be “rolling” (that is, judged for the period from any day) or “point-to-point” (that is, judged from a defined day to the end of the period following that day). | ||
As are most [[events of default]], breaching [[NAV trigger]] is a second-order derivative for the only really important type of default: a [[failure to pay]]. A significant decline in [[NAV]] makes a payment default ''more likely''. Except that it doesn't, unless the fund is refusing to de-risk its derivative positions commensurately. [[NAV]] declines in two main ways: | |||
*[[Financial instrument|Asset]]s (be they physical or derivative) decline in value | |||
*Investors withdraw investments from the fund. | |||
In practice an official [[NAV]] is only “cut” once for every “[[liquidity period]]”, and it is hard to see how a [[credit officer]], however enthusiastic, could determine what the [[net asset value]] was at any other time. On the other hand, [[credit officer]]s don’t usually monitor NAV triggers anyway, so what do they care? | In practice an official [[NAV]] is only “cut” once for every “[[liquidity period]]”, and it is hard to see how a [[credit officer]], however enthusiastic, could determine what the [[net asset value]] was at any other time. On the other hand, [[credit officer]]s don’t usually monitor NAV triggers anyway, so what do they care? | ||
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{{Seealso}} | {{Seealso}} | ||
*[[NAV]] | |||
*[[NAV per share]] | |||
*[[Credit mitigant|Credit mitigants]] | *[[Credit mitigant|Credit mitigants]] | ||
*{{isdaprov|Additional Termination Events}} | *{{isdaprov|Additional Termination Events}} | ||
{{ref}} | {{ref}} | ||