Structured Products & Liquid Alternatives

The Economics of Structured Finance

The essence of structured finance activities is the pooling of economic assets like loans, bonds, and mortgages, and subsequent issuance of a prioritized capital structure of claims, known as tranches, against these collateral pools. As a result of the prioritization scheme used in structuring claims, many of the manufactured tranches are far safer than the average asset in the underlying pool.

A Perspective on Liquidity Risk & Horizon Uncertainty

For decades, the standard deviation of investment returns and beta have been the dominant risk metrics and guideposts for building portfolios of risky assets, but these risk measures have provided little help in explaining the cross-asset and cross-market volatility experienced over the last two years. The most recent spate of selling-contagion arose largely as a result of fund flows across asset classes. These flows were related to the urgent and large need to reduce risk and leverage by those investors who found themselves on the brink of financial ruin as a result of losses incurred.