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Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

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Securities-Based Lending

A perfect storm of soaring equity values and historically low interest rates has sparked a borrowing binge among securities investors. Securities-based loans ("SBLs") are a very attractive product for the broker-dealers who market them. However, SBLs impose substantial risks on borrowers. These risks are easy to overlook in a buoyant market but will eventually wreak havoc on the financial wellbeing of investors who are not prepared to withstand the next bear market. In this paper, Paul Meyer reviews the types of lending in which broker-dealers engage, describes how SBLs are regulated and marketed, and points out the considerable risks borne by a customer who borrows against his savings.

The Priority Senior Secured Income Fund

Published in the PIABA Bar Journal, 20 (2): 191-206, 2013.

Retail investors are being sold increasingly obscure non-conventional investments. With the Priority Senior Secured Income Fund (PSSI), issuers may have finally gone too far. PSSI is the first registered investment company that invests primarily in leveraged loans and CLOs. Unlike the mutual funds with which most retail investors are familiar, PSSI investors are not able to redeem shares daily at PSSI's net asset value. PSSI is not listed on an exchange and traded like a closed-end fund and so investors will have neither an observable market price nor any opportunity to sell shares in the secondary market.

PSSI, like other non-traded investments, is an extremely high cost offering. Its upfront fees of at least 9% and annual fees of over 8%, in addition to the high cost of its underlying structured finance investments, require persistently high returns on its portfolio to generate a positive internal rate of return for fund investors. The increased risks borne by investors to generate that return are complex and are not likely to be appreciated by brokers or retail investors.

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