What Is A Special Investment Vehicle (SIV)?

A Special Investment Vehicle, or SIV, is a collection of investments that earns profit on the difference in price (spreads) between structured financial products (CDOs, MBS's etc.) and short-term debt.

For example, a SIV may borrow money in the wholesale market at 2% and then invest it in structured products for a return of 5% and earn a profit of 3%. SIVs are usually highly leveraged to magnify returns and borrow on a very short-term basis and as a result, are very exposed to liquidity in the money markets.

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