Structured Investment Vehicle - Explained
What is a Structured Investment Vehicle?
Written by Jason Gordon
Updated at October 6th, 2021
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Table of Contents
What is a Structured Investment Vehicle?How Does a Structured Investment Vehicle Work?What is a Structured Investment Vehicle?
A structured investment vehicle (SIV) is a type of fund or investment pool that seeks to generate profit from credit spreads short-term liabilities or debts and long-term assets. Conduits is another name structured investment vehicles are called, SIVs purchase investment assets set up to profit from the divergence between short-term debts and long-term financial products.
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How Does a Structured Investment Vehicle Work?
In a bid to earn profit from short-term debts and long-term assets, structured investment vehicle issues commercial papers in form of short-term debts so as to use the fund realized to purchase long-term assets with good credit ratings. Aa a fund with special purpose, SIV look out for assets with AAA and BBB as their credit ratings. Once SIV generates funds from the sales of commercial papers, assets such as Asset-Backed Securities (ABS), collateralized debt obligations (CDO), mortgage-backed securities (MBS), and others. Money generated by SIV from the sale of commercial papers are invested in assets with longer maturity as listed above.