Lesson 17 of 25 · 6 min

Collective advance rates versus single-name

The same equity dollar is seventy cents in a pool and thirty-five cents in Calder, because the exits are not the same dollar.

The broad-market equity collective carries 70 percent. Meridian carries 50. Calder carries 35. All three rows are equity. The twenty-point and thirty-five-point gaps are the schedule pricing the number of exits, which Track 7 lesson 1 treated as the thing being lent against.

A collective is a pooled vehicle. Selling it is selling a slice of many names through one order book that, on a broad fund, is itself deep. A single name is one residual and one book. The schedule therefore advances the collective further than either single name, and advances the larger, quieter industrial further than the growth name. The March figures are that ranking in dollars.

Put the collective's $891,420 through the other two rates. At 70 percent it contributes $623,994. At Meridian's 50 percent it would contribute 891,420 × 0.50 = $445,710, which is $178,284 less. At Calder's 35 percent it would contribute 891,420 × 0.35 = $311,997, which is $311,997 less than the printed product. Twenty points on this sleeve is $178,284 of recognised collateral; thirty-five points is $311,997.

The reverse substitution is the concentration lesson in one cell. Calder's $1,840,005 at the collective's 70 percent would be 1,840,005 × 0.70 = $1,288,003.50, against the printed $644,001.75. The $644,001.75 gap is what the schedule withholds for Calder not being a pool. It is also, to the dollar, Calder's printed lending value — the haircut on that name is 65 percent, and 1,840,005 × 0.35 = 1,840,005 × (0.70 − 0.35) only after you notice 0.70 − 0.35 = 0.35.

Equity is the asset class. The row is the exit. The advance rate is attached to the second of those, which is why three equity rows do not share a rate.

Key terms

Collective: A pooled vehicle treated as diversified by the schedule. On this book, the broad-market equity line at 70 percent.
Single-name row: A holding whose residual is one issuer. Meridian at 50 percent, Calder at 35 percent.
Exit count: How many independent order books a sale would run through. The quantity a collective rate is paying for.

Worked example

One sleeve, three rates

The collective's March market value, $891,420, run through 70, 50 and 35 percent.

At the collective rate, 70%: $623,994
At Meridian's rate, 50%: $445,710
Gap versus 70%: $178,284
At Calder's rate, 35%: $311,997
Gap versus 70%: $311,997

Thirty-five points of schedule, on one sleeve, is $311,997 — the same number as the 35 percent product itself.

Check yourself

The collective is $891,420 at 70 percent. How much lending value does that produce, and how much less would the same dollars produce at Calder's 35 percent?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.