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. Credit Derivative

    Privately held negotiable bilateral contracts that allow users ...
  5. Securitization

    The process through which an issuer creates a financial instrument ...
  6. Structured Finance

    A service that generally involves highly complex financial transactions ...
Related Articles
  1. Insurance

    CDOs And The Mortgage Market

  2. Insurance

    Dissecting The Bear Stearns Hedge Fund ...

  3. Mutual Funds & ETFs

    Asset-Backed Commercial Paper Carries ...

  4. Options & Futures

    These Financial Products Are Too Complex ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center