Hedge Funds and Asset-Backed Securities: Rapid Fire
Chapters in this video
- 0:00 Hedge funds as private, illiquid, exempt partnerships
- 1:00 Accredited versus qualified purchaser exemption caps
- 2:15 The 2-and-20 fee structure and fund-of-funds stacking
- 3:03 Schedule K-1, phantom income, and the partnership pass-through
- 4:05 Securitization and the CMO timing-risk versus CDO credit-risk distinction
- 5:00 PAC, companion, IO, and PO strip behavior inside CMOs
- 6:41 CDO waterfall: cash flows top-down, losses bottom-up
- 7:28 Clean-up calls and 30/360 mortgage-backed accrual
- 8:01 Rapid-fire exam recap
What this video covers
- Why hedge funds are private placements under Regulation D, which exemption caps beneficial owners at 100 versus 2,000, and why a qualified purchaser is a harder bar than an accredited investor
- How the "2 and 20" fee structure works, what a high-water mark protects, and why a fund of funds stacks fees on top of fees
- Why hedge fund investors receive a Schedule K-1 instead of a Form 1099, and how phantom income creates tax liability without cash distributions
- The securitization pipeline from originator to trust to tranches, and why collateralized mortgage obligations (CMOs) divide timing risk while collateralized debt obligations (CDOs) divide credit risk
- Which CMO tranche carries the lowest risk and lowest yield (Planned Amortization Class, PAC), which absorbs the most prepayment volatility (companion), and how interest-only (IO) strips move opposite to principal-only (PO) strips
- The direction of CDO cash flows versus losses, and why senior tranches are paid first but protected last while equity tranches are paid last and wiped out first
- When a clean-up call retires remaining bonds early, and why mortgage-backed accrued interest always uses a 30/360 day-count convention
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