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“Vertical Slice” Asset Switches : SIVs Edition

Via Standard & Poor’s : The Global Liquidity Squeeze Has SIVs In A Tight Spot?
In some cases, capital note investors have agreed to monetize their losses in the current period by buying the assets back from the SIV and fund them on-balance-sheet. This is typical of asset switches. This strategy leaves the capital note in a position to ride out the liquidity tightened markets and wait to see if asset prices eventually rise and hold to asset maturity if preferable. This benefits the SIV because while the capital note is retired, the SIV is locking in a sale price of the assets and preventing further erosion in value, which would place the senior liabilities in higher likelihood of loss. It is certainly a solution to markets where bid-offer spreads can be quite substantial. It does, however, also leave SIVs with no ability to realize the potential price appreciation of assets in future periods. As we stated above, we believe that SIVs are more focused on solving the immediate problem and are willing to forego the upside.
Sometimes these asset switches are referred to as “vertical slice” asset switches, which means that the manager will leave exactly the same bonds, derivatives, and cash in the portfolio as it sells to the capital note investor. The leverage of senior notes over capital notes also remains the same so if we assume the 10-to-1 leverage that the capital noteholder needs to take out 11 dollars for a single dollar of capital note. These managers are focused on eliminating the argument that they allowed the capital investors to “cherry pick” the assets to be sold in the asset switch. In general, SIV managers attempt to execute asset switches that keep the asset sector concentrations, NAV, and leverage for the remaining investors the same both pre- and post-asset switch….
Original Source

11 December, 2007| Economy | Comments (0) @ 12:19

Euro Cash Changeover and Inflation

Paper from the International Journal of Central Banking : Did Prices Really Soar after the Euro Cash Changeover? Evidence from ATM Withdrawals by Paolo Angelini and Francesco Lippi
The press:
Whatever the experts say, many European consumers still feel retailers are masking price increases with the changeover to the euro….
Original Source

11 December, 2007| Economy | Comments (0) @ 11:57

Vanguard moving to the, um, vanguard?

Passive mutual fund pioneer Vanguard seems to be launching a hedge fund in order to, well, stay on the vanguard….
Original Source: allaboutalpha.com

11 December, 2007| Economy | Comments (0) @ 1:59

November not the new August after all

We cook up some crazy theories here at AllAboutAlpha.com. But this one seems to have actually been right….
Original Source: allaboutalpha.com

11 December, 2007| Economy | Comments (0) @ 1:00

Lipper predicts British mutual funds will be “increasingly influenced” by hedge fund fees

Thomson News reports today on a Lipper study of UK mutual funds that shows many have not implemented performance fees in the wake of regulatory liberalisation. The following observation from Lipper illustrates why the seemingly benign and boring topic of fees is central to alpha-centric investing.
“As part of the wider industry phenomenon of differentiating between premium […]…
Original Source: allaboutalpha.com

11 December, 2007| Economy | Comments (0) @ 0:58

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