Collateral. Now there is a word likely to strike terror into the hearts of most financial professionals.
Until just a few years ago, none of us cared greatly about this term, if only because most equity funds were not especially complex. Not anymore. Collateral is now a big issue, and the subject of much hand wringing. Collateral is most obviously an issue with structured investments (the new name for structured products) where the investor’s ‘return’ is an IOU issued by a large investment bank. As we all know, post-Lehman IOUs issued by investment banks are regarded with more suspicion than they used to be. But collateral is also an issue for any adviser when client funds are invested i...
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