Hedge Funds and Asset-Backed Securities: Rapid Fire
Chapters in this video
- 0:00 Hedge fund exemption layers and the two bouncers
- 1:31 100-beneficial-owner cap and look-through rules
- 2:37 Qualified-purchaser exemption thresholds
- 3:17 Illiquidity, 2 and 20 fees, and Schedule K-1 phantom income
- 4:45 Securitization factory and CMOs versus CDOs risk split
- 5:47 PAC, companion, IO, and PO tranche behavior
- 6:42 Prepayment risk at 10% and mortgage-backed 30/360 day-count
- 8:11 Rapid-fire exam recap
What this video covers
- The two exemption layers that keep hedge funds private: the 1940 Act exemption (who owns the fund) and the Regulation D private placement exemption (who the offering is sold to)
- How the 100-beneficial-owner exemption caps ownership at 100 without requiring accredited status, and how look-through rules treat a fund of funds
- Why the qualified-purchaser exemption has no owner cap but sets a higher bar: $5 million in investments for individuals, $25 million for institutions
- The illiquidity of hedge funds from lock-up provisions and the absence of a secondary market, plus the "2 and 20" fee structure and Schedule K-1 tax reporting with phantom income
- The core securitization process: originator, pooled trust, tranches, investor cash flows; and the clean-up call triggered near 10% remaining pool balance
- Why collateralized mortgage obligations (CMOs) divide timing risk while collateralized debt obligations (CDOs) divide credit risk, and the cash-flow waterfall top-down with losses bottom-up
- How prepayment (contraction) risk and extension risk operate in mortgage pools, and the inverse behavior of interest-only (IO) strips versus principal-only (PO) strips
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