Structured Investment Vehicle - SIV

AAA

DEFINITION of 'Structured Investment Vehicle - SIV'

A pool of investment assets that attempts to profit from credit spreads between short-term debt and long-term structured finance products such as asset-backed securities (ABS). Funding for SIVs comes from the issuance of commercial paper that is continuously renewed or rolled over; the proceeds are then invested in longer maturity assets that have less liquidity but pay higher yields. The SIV earns profits on the spread between incoming cash flows (principal and interest payments on ABS) and the high-rated commercial paper that it issues. SIVs often employ great amounts of leverage to generate returns.

Also known as "conduits".

INVESTOPEDIA EXPLAINS 'Structured Investment Vehicle - SIV'

SIVs are less regulated than other investment pools, and are typically held off the balance sheet by large financial institutions such as commercial banks and investment houses. They gained much attention during the housing and subprime fallout of 2007; tens of billions in the value of off-balance sheet SIVs was written down as investors fled from subprime mortgage related assets.

Many investors were caught off guard by the losses because little is publicly known about the specifics of SIVs, including such basics as what assets are held and what regulations determine their actions. SIVs essentially allow their managing financial institutions to employ leverage in a way that the parent company would be unable to due to capital requirement regulations.

RELATED TERMS
  1. Locally-Capped Contract

    A type of embedded option found in structured investment products, ...
  2. Structured Repackaged Asset-Backed ...

    A derivative product similar to an exchange-traded fund (ETF) ...
  3. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  4. Structured Finance

    A service that generally involves highly complex financial transactions ...
  5. Securitization

    The process through which an issuer creates a financial instrument ...
  6. Credit Derivative

    Privately held negotiable bilateral contracts that allow users ...
RELATED FAQS
  1. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  2. What is the difference between compounding interest and simple interest?

    Interest is the cost of borrowing money, where the borrower pays a fee to the owner for using the owner's money. The interest ... Read Full Answer >>
  3. What is the relationship between modified duration and interest rates?

    Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >>
  4. How does inflation affect a company's short-term investments?

    Inflation marginally erodes a company's short-term investments. Short-term investments are typically ultra-safe liquid assets, ... Read Full Answer >>
  5. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  6. How do you find accrued interest on a bond?

    A bond is a debt instrument issued by a company, government agency or municipality to raise money. Interest payments are ... Read Full Answer >>
Related Articles
  1. Insurance

    CDOs And The Mortgage Market

    These structured products contribute to keeping borrowing rates low.
  2. Insurance

    Dissecting The Bear Stearns Hedge Fund Collapse

    Learn how a deadly mix of greed and leverage cost investors millions.
  3. Mutual Funds & ETFs

    Asset-Backed Commercial Paper Carries High Risk

    Asset-backed commercial paper has characteristics that make it much more risky than traditional commercial paper.
  4. Options & Futures

    These Financial Products Are Too Complex For The Average Joe

    Structured financial products are so elaborate that investors are unable to assess costs and risk.
  5. Investing Basics

    What is a "Coupon"?

    In the financial world, “coupon” represents the interest rate on a bond.
  6. Stock Analysis

    Is it Time to Buy Floating Rate Bonds?

    The Fed’s awaited interest rate hike could finally be at hand. Are floating rate bonds the way to go?
  7. Investing Basics

    Treasury Inflation-Protected Securities (TIPS)

    Treasury inflation-protected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index.
  8. Retirement

    Facing Retirement? Look Beyond 100% Bonds

    Retiring doesn't mean putting all your money in bonds. There are two things to consider when it comes to be invested in bonds: growth and inflation.
  9. Mutual Funds & ETFs

    Is the PowerShares (PFEM) ETF a Good Bet Now?

    What you need to know if you are considering trading PowerShares Fundamental Emerging Markets Local Debt ETF.
  10. Mutual Funds & ETFs

    Anatomy of Emerging Markets Debt ETF (EMLC)

    This emerging market bond ETF offers a high yield, but there are dangers. Find out why.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center