►
Description
Focus On is a MakerDAO original series, where we talk with Core Units about their progress and deep dive into the details.
We were joined by Real-World Finance Core Unit members William Remor @williamr, Christian Petersen @christiancdpetersen, and Eric Rapp @Eumenes. Project Real-World Sandbox Report author Luca Prosperi @luca_pro also joined as a guest.
The first iteration of this new methodology captures evaluation criteria and other best practices from structured finance markets.
A
For
this
episode
we
are
joined
by
the
team
from
the
real
world
finance
corps
unit,
facilitator
will
remember
and
contributors
christian
peterson
and
eric
raff.
We
also
have
project
real
world
sandbox
author
luca
prosperi,
on
the
call
with
us
today
and
together,
we'll
be
discussing
the
newly
proposed
methodologies
for
reviewing
nip
six
applications
for
structured
finance
transactions.
A
B
Yeah,
so
my
name
is
christian
peterson,
I'm
a
lawyer
with
25
years
of
structured
finance
experience
representing
both
borrowers
and
lenders,
mostly
in
the
project
finance
space
was
15
years
in
international
law
firms
with
rotations
in
washington,
hong
kong
and
tokyo.
Last
10
years,
I've
been
working
in-house
and
I've
had
the
privilege
of
working
on
transactions
in
over
40
different
countries
and
in
that
time
I've
kind
of
pretty
much
seen
everything
I
believe,
I'm
the
clown
with
the
blue
pants
so
over
to
you
eric.
C
Hi
I've
been
in
specialty
finance
about
20
plus
years.
You
know,
probably
about
15's,
been
in
the
abs,
investing
in
structured
finance
areas.
In
terms
of
specifics,
you
know
I
was
in
the
great
through
the
great
crisis.
I
was
a
for
fortress
investment
group.
You
saw
a
lot
of
different
structures.
I
I
rated
abs
structures
at
dbrs,
including
on
deck,
which
I
think
was
the
first
fintech
deal
investment
grade
rated
in
the
space,
and
recently
I've
been
more
focused
on
building
fast,
growing,
fintech
businesses
and
now
the
d5
rabbit
hole.
B
Our
next
slide,
so
just
to
give
you
a
brief
outline
of
the
presentation
we're
going
to
define
what
structured
finance
is,
give
a
definition
of
securitization,
really
discuss
the
methodology
and
the
underlying
principles
of
the
methodology
that
we
published
in
the
january
january
17th
specifically
to
go
through
the
various
key
aspects
of
that
methodology
and
then
there's
just
some
backup
information
about
reviewing
originators
and
servicers.
So
next
slide.
B
B
It's
not
a
corporate
loan
and
the
key
is
that
it
is
dependent
entirely
and
exclusively
on
the
cash
flows
generated
by
the
pool
of
those
assets.
So
securitization
is
a
form
of
structured
finance
where
a
group
of
financial
assets
are
pooled
and
securities
are
issued,
representing
the
interests
in
the
pool.
Typically,
the
securities
are
issued
as
bonds
for
credit
investors.
B
Project
finance
is
another
form
of
structured
finance
where,
in
this
case,
the
revenues
of
a
specific
project,
whether
it
be
a
solar
project,
a
nuclear
project,
a
toll
road
wastewater
treatment
plant.
What
have
you
are
the
exclusive
source
of
debt
repayment?
So
in
that
particular
case,
the
lenders
are
looking
at
the
project
as
the
sole
source
of
repayment
they're
not
looking
to
the
corporation.
So
it's
not
a
loan
to
disney
corporation
or
amazon,
where
you're,
just
looking
at
the
corporation
as
a
whole.
B
So
what
is
securitization?
The
primary
goal
of
securitization
is
to
legally
separate
the
pool
of
assets
and
their
associated
cash
flow
and
contractual
rights
from
the
asset,
seller
or
originator,
and
we
spend
a
lot
of
time
focusing
on
this
process
here,
the
seller
or
the
asset
originator.
Their
assets
are
transferred
to
a
legally
separate
entity,
basically
isolating
that
spv
that
separate
entity
from
the
risks
and
liabilities
of
the
seller.
B
The
spv
then
issues
bonds
that
are
backed
by
the
cash
flows
and
the
credit
strength
of
the
assets
in
the
spv.
So
again,
securitization
enables
the
seller
an
originator
to
raise
funds
based
on
the
credit
profile
of
the
asset
pool
alone,
as
opposed
to
the
credit
profile
of
the
seller
and
originator,
and
because
we
are
dependent
on
the
credit
profile
of
the
asset
pool
itself.
B
C
Christian,
let
me
jump
in
one
sec.
I
just
want
to
say
securitization
helps
you
focus
the
credit
profile
of
the
assets
as
opposed
to
the
borrower's
corporate
credit,
because
typically
it's
gonna
be
cheaper
to
go
to
the
asset
pool,
but
there
are
still
links
for
one.
The
borrower
is,
the
originator
is
often
the
servicer,
you
know.
So
if
the
pool
of
auto
loans,
they
have
to
you
know,
collect
these
auto
loans,
so
they're
still
going
to
be
connections
to
the
servicing
entity.
C
You
know
there
typically
will
be
financial
health
covenants
around
the
servicer,
because
the
servicer
gets
in
trouble.
You
know
your
asset
pool,
I.e
your
collateral's
at
risk
and
then
also
if
it's
particularly,
if
it's
a
revolving
credit
deal,
say
think
of
a
credit
card
deal
where
people
don't
just
have
a
one-time
pool
and
then
it
winds
down
the
originator
keeps
putting
in
new
assets.
You
know
when
people
use
their
credit
card
he'll
get
put
in
the
trust.
Again,
there's
going
to
be
a
more
concern
around
the
ongoing
originator.
C
You
know
that
they
have
enough
liquidity
and
they're
running
well,
because
you
don't
want
them
in
financial
trouble
and
start
putting
in
dodgy
assets
into
your
trust.
So
again,
you're
primarily
going
to
the
assets
in
the
trust,
but
don't
think
there's
an
absolute
lack
of
connection.
You
know
to
the
servicing
and
originating
entities.
There's
definitely
still
going
to
be
some
things
there
and
it'll
be
particularly
more
for
kind
of
smaller,
first-time
originators.
C
If
jp
morgan
chase
wants
to
securitize
its
auto
loan
book,
you
know
there
is
two
trillion
dollar
single,
a
renegade
there's
not
going
to
be
as
much
connection
to
their
overall
performance,
but
you
know
first
time
guys
out
of
the
gate.
You
know
don't
expect
you
can
say
it's
in
the
acid
pool.
You
know
you
can't
look
at
my
corporate
entity.
You
know
typically
they're
going
to
until
you're
really
really
solid.
B
B
Six
applications
that
come
in
have
come
in
and
our
goal
and
objective
now,
as
we
understand
the
desire
of
the
community,
is
to
really
scale
up
well
scaling
up,
brings
risks
and
when
we
said
well
we're
going
to
scale
up,
we
had
a
lot
of
people
saying
well,
you
know:
how
are
you
going
to
be
reviewing
applications?
What
are
the
standards,
so
we
wanted
to
publish
a
methodology
that
basically
set
forth
standards
for
reviewing
structured
finance
proposals.
B
Most
importantly,
we
want
to.
We
want
to
avoid
the
situation,
as
you
can
see,
on
the
right-hand
side,
where
maker
is
given
a
bomb
and
that
bomb
explodes
that
bomb
being
collateral,
that's
bad
clutter,
that's
not
able
to
be
repaid
collateral
that
we
have
to
go.
Take
action
on
because,
at
the
end
of
the
day,
that's
going
to
impact
the
surplus
buffer.
So
what
do
we
do
to
minimize
the
risk
of
of
this
process?
B
So
you
know
first,
we
had
to
identify
well.
What
is
it
that
maker
prefers?
There
is
a
range
of
assets
out
there
in
the
world.
You
can
have.
You
know,
there's
just
a
range.
What
we
said
is
okay:
if
we're
putting
billions
of
dollars
through
the
maker
protocol,
we
should
try
to
target
the
highest
quality
assets
and
the
highest
quality
borrowers,
and
we
want
to
make
sure
that
maker
is
in
a
position
as
a
senior
secured
lender.
B
So,
in
the
event
that
there
is
a
problem,
it
has
the
ability
to
recover
as
much
on
what
hits
recover
as
much
as
possible
on
what
it
has
lent.
We
wanted
to
begin
to
develop
a
benchmark
with
comparable
investment
grade
transactions
so
that
we
had
something
that
we
could
look
at
when
a
mf6
application
came
in.
We
said,
okay,
you
know
what
are
the
standards?
How
do
we
want
to
look
at
them
and
make
sure
that
we
were
very
transparent
as
to
what
those
benchmarks
are?
B
We
would
then
go
through
a
due
diligence
process
and
highlight
compare
a
particular
application
against
those
benchmarks
and
identify
and
highlight
material
weaknesses.
We
kind
of
asked
the
question:
could
this
be?
Could
this
emit
six
application
be
financed
in
the
real
world?
If
not,
why
what
is
it?
That's
you
know
driving
this
particular
applicant
to
come
to
the
maker
protocol.
Is
it
because
they're
not
able
to
obtain
financing?
Should
that
be
a
red
flag
for
us?
C
Christian,
let
me
jump
on
one
point.
You
already
talked
about
a
bit
about
how
would
this
proposal
be
financed
in
the
real
world?
I
mean
we're
typically
going
to
look
for
relevant
benchmarks,
not
that
it
has
to
be
done
the
same
way,
but
the
real
world
you
know
has
typically
already
found
a
way.
How
do
they
view
their
risk?
How
do
they
manage
the
risk?
How
do
they
structure
the
risk
and
how
they
price
the
risk,
and
so
we're
going
to
look
to
that?
You
know
it
is
a
starting
point.
C
Typically
on
discussions,
and
you
know
there
could
be
reasons.
You
know
why
the
real
world
is
missing,
something
we're
definitely
open,
but
we're
typically
going
to
expect
those
to
be
thoughtfully
addressed.
You
know
if
the
real
world
typically
wants
a
certain
structure
with
a
certain
level
of
controls
and
protections
for
makers,
the
senior
for
a
senior
lender,
and
someone
comes
in
and
says.
C
Well,
you
know
I
don't
want
to
give
you
those
rights
and
protections,
we're
going
to
say
well,
explain
to
us
why
we
should
not
have
the
typical
rates
and
protections
the
senior
lender
in
the
real
world.
Would
have
you
know
we
can
have
it?
You
know
thoughtful
discussion,
but
you
know
we
don't
want
to
be
giving
away
rights
and
protections.
You
know
without
good
compelling
reasons.
D
And
it's
luca
here,
if
I
can
add
just
one
thing
on
top
of
what
christian
and
eric
just
said
maker,
has-
is
an
ambitious
project
right
incredibly
ambitious
and
wants
to
become
the
most
commonly
used
decentralized
currency
in
the
world,
which
means
that
when
the
maker
wants
to
grow
a
lot
and
financing
many
many
tens
of
billions
of
real
world
assets
and
maker
is
a
dow.
So
has
a
decentralized
governance
model.
B
Sorry
we
can,
we
can
go
here
so
so
looking.
What
is
it
that
we
do
so
one
of
the
things
we
do
is
we
look
to
seek
support
from
professional
legal
intermediaries
experienced
in
particular
market
sectors
and
jurisdictions,
so,
for
instance,
in
the
sakgen
transaction.
We
have
external
counsel
advising
us
and
that's
all
right,
so
we
want
to
make
sure
that
we
are
benchmarking
transactions
against
customary
and
market
practice.
That's
looking
at
the
economics
of
a
particular
transaction.
B
B
We
also
want
to
innovate
right,
so
I
mean
eric
and
I
are
here
because
we
want
to
be
able
to
innovate,
but
we
want
to
be
able
to
innovate
in
collaboration
with
existing
mark
market
practice,
and
what
that
means.
Basically,
in
my
mind,
is
that
you
know
there
has
been
centuries
of
lessons
learned
in
banking
and
we
shouldn't
just
throw
those
lessons
learned
out,
because
there
is
a
you
know,
a
a
new
technology
or
a
new
process.
B
The
new
technology
in
the
new
process
is
important,
but
it
may
not
address
all
of
the
issues
in
a
securitization
or
in
a
structured
financing.
So
we
want
to
you
know,
use
the
legos
that
we
have
and
build
on
and
replace,
perhaps
some
of
the
infrastructure
that
we
have,
but
not
necessarily
just
throw
out
the
baby
with
the
bathwater
and
say.
Well,
you
know
everything
that
traditional
finance
has
done
for
the
last
700
800
years.
It
is,
you
know,
totally
useless.
We
want
to.
B
B
You
know
we
have
an
obligation
to
pay
citibank
at
the
end
of
the
month,
that
is
receivable,
citibank,
packages,
all
those
up
into
an
asset
pool
and
transfers
that
asset,
that
collection
of
receivables
to
a
special
purpose
company
pursuant
to
a
true
sale,
and
it's
a
true
sale
that
segregates
separates
the
underlying
assets
from
citibank
such
that.
If
citibank
has
a
financial
issue,
the
spv
itself
owns
the
underlying
assets.
B
The
underlying
the
spv,
basically
is
a
is
an
entity
that
doesn't
really
have
you
know
it's
got
a
little
bit
of
a
brain,
it's
got
a
heart,
but
it
doesn't
do
a
whole
lot
other
than
sit
and
collect
money
and
then
redistribute
funds
to
the
senior
debt
and
the
junior
debt.
So,
as
a
consequence
often
case,
the
sbv
issuer
is
managed
by
a
trustee.
This
can
be
a
delaware,
statutory
trust.
There's
perhaps
an
indentured
trust
that
sits
on
top
of
that
that
that
kind
of
does
administration,
that's
particular
to
the
us
and
other
jurisdictions.
B
They
have
other
other
formats
and
formulas,
but
basically
the
spv
is
bankruptcy,
remote
from
the
asset,
originator
and
the
sbb
can't
really
do
anything.
Its
purpose
is
limited
it.
It
doesn't
have
the
wide,
ranging
corporate
authorities
that
a
you
know,
a
typical
corporation
would
have
so
we're
working
back
to
the
left-hand
side.
B
You
have
somebody
called
the
asset
servicer,
often
the
asset
servicer
and
the
asset
originator
actually
the
same
person,
because
the
spv
issuer
doesn't
actually
do
anything
other
than
collect
money.
The
spv
issuer
needs
somebody
to
go
out
and
service.
The
accounts
receivable
service,
the
mortgage
loan
service,
whatever
that
particular
asset
school
pool,
is
typically
the
obligors
depending
on
the
assets.
B
The
the
obligors
under
you
know
in
the
asset
pool,
will
direct
the
cash
to
a
a
lock
box,
safe
that
you
have
there
at
the
bottom
and
from
a
from
a
structured
finance
standpoint,
whether
it's
securitization
or
project
finance
cash
is
king
and
control
of
the
cash
is
essential
because
remember
the
fundamental
premise
is
we
only
get
repaid
from
cash?
That's
that
that
is
our
sole
source
of
revenue
from
those
assets.
B
So
once
the
spv
issuer
has
cash
and
is
able
to
repay
the
debt,
there
is
then
a
cash
waterfall
and
very
simple
cash
waterfall.
Here
the
senior
debt
gets
paid.
First,
the
junior
debt
pay
gets
paid
next
and
then
finally,
the
equity
gets
paid
out.
So
we
will
be
coming
back
to
this
slide
kind
of
throughout
the
presentation.
But
this
is
a
very
simplified
version.
Simplified
schematic
of
how
a
securitization
will
work
next
slide.
B
Okay,
a
key
thing
for
us
is
to
avoid
bankruptcy,
because
if
the
asset
originator
goes
into
bankruptcy
and
the
underlying
assets
are
still
on
the
books
as
an
asset
of
the
asset
originator,
that
basically
means
the
spv
gets
trapped
into
the
bankruptcy
estate
of
the
asset
originator.
Now
each
jurisdiction
has
different
bankruptcy
laws
in
the
u.s.
This
comes
may
come
as
a
surprise
to
many
non-americans,
but
the
u.s
bankruptcy
code
is
actually
very,
very
debtor
friendly,
whereas
most
jurisdictions,
for
instance,
on
on
the
european
continent,
are
much
more
creditor
friendly.
B
So
the
goal
here
is
really
to
avoid
the
bankruptcy
of
the
asset
originator,
to
avoid
the
substantive
consolidation
of
the
spv
in
the
bankruptcy
state
of
the
asset
originator
doing
so
in
to
do
so,
we
need
to
demonstrate
that
the
spv
is
separate
from
the
asset
originator,
having
a
trustee
actually
run
and
operate.
The
spv
is
one
way
of
doing
it.
B
B
B
B
Second,
how
does
maker
sign
agreements
it
can't
it's
not
a
legal
person.
It
has
no
ability
to
sign
agreements.
How
can
how
does
maker
make
decisions?
What
decisions
does
maker
want
to
make
loans
require
active
administration?
It's
not
like
you
lend
it's
not
like
crypto,
where
you
can.
You
know,
put
put
your
crypto
in
a
vault
and
you
know
over
collateral
you're,
either
under
collateralized
or
overclouderized
you're
under
collateralized
you're
liquidated
at
the
end
of
story.
B
You
know,
loans
require
administration,
loans
require
when
you
know
borrowers
coming
to
lenders
and
say:
oh
gee,
you
know
I'm
going
to
be
late
on
my
financial
statements
this
month.
You
know,
please
don't
put
me
in
default,
oh
by
the
way
you
know
I
forgot
to
make
this
filing
yeah
I'm
going
to
be
late.
Oh,
can
I
get
a
waiver
on
this
provision
for
this
particular
you
know
transaction
there's,
all
sorts
of
decisions
that
need
to
be
made
in
an
administration
of
a
loan
independent
third
parties.
B
B
So
you
know,
one
of
the
things
we
are
we
are
currently
working
on
is
trying
to
identify
and
come
to
an
alignment
on
how
decisions
are
made
in
the
maker
community
and,
like
I
said,
there's
there's
a
number
of
different
decisions
that
need
to
be
made.
There
are
different
processes
that
need
to
happen.
For
instance,
you
know
paint
repayment
of
the
debt
is
one
process.
B
You
may
want
an
independent
reputable
third
party
to
hold
and
take
direction
in
respective
assets
that
are
pledged.
So,
if
there's
an
event
a
default
and
we
want
to
exercise
our
rights
as
a
secured
lender.
Who
do
we
tell
how
you
know
how?
How
do
we
go
about
telling
this
person
to
yeah
you
you?
Our
debt
is
a
hundred
dollars,
you're
able
to
sell
the
assets
for
75
yeah.
That's
a
good
deal,
go
ahead
and
sell
the
assets.
B
You
know
most
parties
independent
third
parties
are
not
going
to
want
to
make
a
commercial
determination
that
75
is
a
good
number
they're
going
to
want
to
be
be
told
by
somebody.
That's
75
is
a
good
number
and
then
what
you
know?
What
do
we
do
when
when
there's
defaults,
you
know,
do
we
immediately
accelerate
the
loan?
Do
we?
How
do
we
file
claims?
What
if
we
have
to
go
to
court
to
pursue
to
pursue
a
claim?
All
of
those
things
we
need
to
work
through?
B
C
Thank
you.
Thank
you
christian.
So
I'm
going
to
go
through
a
number
of
the
other
areas
on
the
asset
manager
review,
and
so
what
areas
am
I
going
to
cover
you
know?
Christian
is
done
legally
the
legal
review
very
thoughtfully
we're
going
to
talk
about
ownership
and
management
underneath
the
asset
manager
review,
so
people
want
to
manage
assets
on
our
behalf.
What
are
we
going
to
look
at
ownership
and
management,
their
alignment
with
maker
and
that
they
have
sufficient
personnel
policies,
infrastructure
and
key
areas?
C
You
know
things
like
investing
sourcing
risk
management,
et
cetera,
so
I'm
going
to
just
go
and
flip
through
some
of
these
and
I'm
not
going
to
necessarily
say
everything
you
know
on
the
list.
We
sent
out
that
12-page
description
before,
but
I
want
to
flag
stuff
that
I
think
we
really
really
focus
on.
Typically,
you
know
and
just
want
people
to
understand
how
we're
thinking
about
it.
C
If
you
have
questions
as
I
go,
please
please
say
so
so
first
owner
and
manage
ownership
and
management,
you
know
we
typically
are
gonna
want
to
understand
the
over
your
ownership
structure.
You
know
who
are
the
investors?
You
know
how
do
they
control
it?
You
know
how
do
they
provide
oversight
to
management
around
setting
goals
and
strategy?
You
know
how
is
you
know
their
governance
done.
You
know,
because
all
these
things
can
have
an
impact
on
on
the
lender.
You
know
if
they
don't
run
their
business
ownership
business.
Well,
we
could
suffer.
C
Then
you
know
in
management.
What
are
we
gonna?
Look
at.
You
know
kind
of
the
roles
and
responsibilities
you
know:
do
they
have
the
right
people
to
cover?
You
know
the
business.
What's
their
experience
and
track
record,
you
know
with
the
assets
they
want
to
work
in
you
know,
typically
in
the
investing
world
you
like
to
see
guys
who've
already
done
it
before
you
know
and
have
an
existing
track
record.
That's
typically
one
of
the
best
predictors
of
how
they're
going
to
do
with
the
assets
in
the
future.
C
We
also
like
to
see
management
teams
that
have
some
experience
working
together
before
you
know,
often
with
new
management
teams
that
haven't
worked
together,
they
can
be
very
experienced
guys
separately,
but
until
you
kind
of
work
together,
there
can
be
hiccups
and
disagreements
about
who's.
Doing
what
and
you
often
will
see
fallout
you
know
with
these
really
star
management
teams
put
together,
but
they've
never
actually
worked
together.
C
C
We
don't
see
the
collectors
we
don't
see
99
of
what's
going
on
so
at
the
end
of
the
day
you
know
we
want
to
have
managers
under
us
that
are
very
aligned
with
our
interests,
because
we
need
them
to
do
the
right
thing.
You
know
we're
not
there
and
we're
not
going
to
see
a
lot
of
the
actions
you
know.
So
how
do
we
typically
think
about
this?
One?
We
like
to
see
that
management
you
know,
has
invested
meaningful
amounts.
You
know
their
own
capital
meaningful
to
them.
C
You
know
in
a
transaction,
so
you
know
if
things
go
bad
they're
going
to
feel
it
again
being
a
senior
secured
lender.
We
like
not
to
be
in
the
first
loss
position.
We
want
someone
else
to
be
in
the
first
lost
position.
You
know
there
could
be
like
15
capital
under
us,
you
know.
So
if
things
go
wrong,
we
don't
feel
it
for
a
good.
While
you
know
we
typically
want
to
structure
in
a
way
that
we
won't
feel
it.
You
know,
if
you
think
about
this,
who
should
be
in
the
first
loss.
C
Typically
the
people
that
have
the
most
the
most
insight
and
abilities
to
manage.
You
know
the
assets,
you
know
the
managers,
the
originators,
the
guys
who
put
on
the
risk
and
manage
it.
They
should
be
in
the
best
position
to
do
a
good
job,
and
thus
it
makes
the
most
sense
that
they
hold
a
meaningful
first
loss
position.
C
We're
also
quite
focused
on
disclosure
of
all
potential
conflicts
of
interests.
You
know,
particularly
around
management
and
ownership.
You
know:
are
there
any
little?
You
know
insider
connections,
financial
connections,
we
don't
understand,
you
know
we
we're
like
for
some
of
the
projects.
I
think
it's
important
that
maker
can
work
with
the
community
members,
but
we
want
to
understand
you
know
if
your
investors
are
from
the
community,
you
know
and
have
a
sizable
vote
in
approving
this
project.
C
I
think
that's
something
the
community
should
see
and
then,
if
there
are
going
to
be
some
third
party
transactions,
you
know
done,
we
want
to
see
them
all
done
at
arm's
length,
fair
market
value.
You
know
again,
this
is
really
around
alignment.
When
we're
lending
to
someone
you
want
to
make
sure
they're
operating
kind
of
in
the
best
practices
and
ethics.
You
know
we
don't
want
them
to
be
taking
our
loan
and
using
it
in
kind
of
clever
ways
to
make.
You
know
unfair
deals
with
their
affiliates.
C
All
right,
how
do
we
think
about
the
key
functions
you
know
in
the
asset
manager?
Well,
first,
we
have
to
think
both
at
the
fund
level.
You
know
if
they're
doing
multiple
investment
strategies
or
just
different
deals
and
putting
them
all
together
in
a
fund,
so
we
think
about
what
are
they
doing
at
the
fun
level
and
then
we
also
have
to
think
what
are
they
doing
at
the
individual
investment
level?
You
know
so
one
manager
could
maybe
have
three
different,
auto
auto
loan.
C
You
know
facilities
with
three
different,
auto
companies,
so
we
have
to
understand
you
know
who
are
the
key
personnel.
We're
gonna
put
a
lot
of
emphasis
on
that
making
the
investment
decisions.
What
are
the
underwriting
and
fun
guidelines
both
for
the
fund?
So
how
do
they
think
about
risk
at
the
fund
level,
which
is
ultimately
where
we
are
exposed
at
and
then
also
how
do
they
underwrite
individual
investments?
C
This
is
a
big
deal
and
then
also
what's
their
investment
process,
you
know
how
do
they
make
decisions
so
they've
got
these
guidelines
and
underwriting
policy,
but
how
does
it
actually
happen?
You
know
we
want
us
kind
of
see
how
the
sausage
is
made
in
the
factory
so
to
speak,
and
this
is
again
where
it's
easiest
to
get
comfortable
with
managers
who
have
you
know
some
track
record
and
have
been
doing
it
for
a
while,
so
that
we
can
see
you
know,
here's
the
deals
they
did
in
the
last
five
years.
C
C
C
How
do
they
manage
there's
kind
of
a
conflict
of
interest,
typically
between
the
guys
doing
the
front
end
of
the
investments
who
maybe
get
a
little
emotionally
attached
to
their
deals
as
you
should
versus
the
guys
who
manage
the
existing
investments
already?
And
so,
if
it
goes,
something
goes
bad.
It's
often
easier
for
someone
more
as
an
asset
manager
who
didn't
do
the
deal
to
say:
hey
we've
got
a
problem
here.
C
We
got
to
do
something,
so
we
want
to
understand
that
we
want
to
understand
how
you
manage
the
underlying
originators
and
servicers
and
given
deals.
You
know
if
you're
doing
like
facilities
to
auto
loan
companies,
you
know
how
are
they
originating
the
loans?
How
are
they
servicing
the
loans
and
then
finally
I
mean
this
isn't
the
only
thing,
but
we
want
to
understand
how
you
manage
to
stress
situations.
C
You
know
anyone
in
the
business
for
a
while
is
going
to
have
problems.
You
know
it's
happened,
it's
a
probability,
probabilistic
game,
so
it's
expected,
but
we
just
want
to
understand.
You
know
how
you
recognize
it
and
then
how
you
work
through
it.
You
know
getting
a
good
recovery.
It
was
often
dependent
on
people
who
are
willing
to
admit
there's
a
problem
early.
You
know
they
work
hard
to
resolve
it.
C
Sorry
all
right
asset
manager
and
then
where's,
two
more
functions
sourcing.
You
know
this
is
a
big
one,
particularly
in
competitive
markets.
You
know.
So,
where
do
you
get
your
deals,
you
know.
Rarely
are
you
out
there
you
know
and
you're
the
only
lender
in
this
space
if
it's
a
good
space,
so
so
who's
out
there.
You
know
who
are
your
guys
sourcing
deals?
What's
your
strategy,
you
know
how
do
you
deal
with
competition?
C
What's
you
know?
How
are
the
competitors
playing
you
know
and
then
roughly
we
like
to
see
the
pipeline
where
it's
just
kind
of
a
funnel.
We
get
a
sense
of
how
many
deals
you
might
see
a
year.
How
many
make
it
past
the
first
meeting
you
know,
make
it
into
term
sheet.
You
know
at
the
end
of
the
day,
there's
just
a
big
funnel
you
know
and
we
want
to
understand
how
it
works
through
and
then
the
other
one
on
this
sheet
technology,
maybe
not
as
sexy
in
the
investing
world,
but
very
important.
C
C
How
do
you
protect
privacy
and
security?
This
is
a
big
one
regardless,
but
if
say
you're
doing
deals
with
like
consumer
lending,
you
know
there's
a
lot
of
very
serious
laws
about
breach
of
privacy
and
consumer
lending,
so
we
we've
got
to
make
sure
we
understand
that
risk
is,
is
well
protected
and
then
you
know
again
kind
of
a
backup.
You
know
things
go
down,
you
know,
you
know,
how
do
you
manage
a
a
technology
speed
bump?
So
it's
a
speed
bump
and
not
a
cliff.
C
Okay,
risk
management.
Again
this
is
another
big
one.
You
know
you
don't
want
the
alligator
to
bite
you,
so
you
know
who's
doing
it.
You
know
you
have
guys
that
are
experienced.
What's
their
role
and
again,
what's
their
reporting
lines,
you
know,
and
you
want
some
independence,
you
don't
want
all
the
investment
guys
running
the
risk
management
because
in
a
sense,
they've
already
done
the
deals
and
then
there's
not
an
independence
and
we're
also
particularly
interested
in
how
do
they
price
and
value
existing
deals?
You
know
how
are
things
carried
on
the
books?
C
Did
you
know
the
marks
or
prices
tend
to
reflect
accurately?
You
know
the
risk
in
the
investments
you
know
in
current
situations,
you
know
you've
seen
a
lot
of
kind
of
private
equity
firms
and
at
times
illiquid
hedge
funds
get
in
trouble
around
kind
of
having
illiquid
investments
and
they're
not
wanting
to
write
it
to
where
it
ought
to
be,
and
it's
hard
to
tell
sometimes
then
reporting
another
big
big
one.
You
know
at
the
end
of
the
day,
you
know
we
can
only
be
proactive
based
on
the
information
we
see.
C
So
we
want
to
see
good
reporting
at
the
fund
level.
You
know
for
all
the
different
investments
and
then
you
know
each
individual
investment.
We
want
to
understand
not
only
what
do
you
report
to
us,
but
how
do
you
report
it
to
yourself?
You
know,
because
if
you're
going
to
be
proactive,
you
know
in
managing
your
book.
You
need
to
be
getting
good
information
on
your
investments,
so
we
want
to
understand
how
that
works.
C
So
there's
a
lot
of
it's
gonna,
be
the
frequency,
accuracy
and
timing
kind
of
the
big
three
here
and
then
kind
of
related
to
this
around
reporting.
You
know
we
want
to
understand
kind
of
the
daily
or
the
detailed
remittances.
So
how
are
your
different
investments
dealing
with
their
cash
and
how
do
you
deal
with
the
cash
you
know
the
end
of
the
day
as
christians
say,
cash
control
is
a
big
deal
because
being
a
senior
lender.
You
know,
that's
that's
one
of
our
primary.
C
C
A
I
got
all
muted,
so
I
wasn't
sure
if
someone
wanted
me
to
ask
the
question
sure
chris
christian
thanks
for
the
comment-
and
this
is
that
the
heart
of
this
question
in
chat
is,
is
really
around
and
I
struggle
with
myself
as
being
a
facilitator.
Yes,
is
that
how
much
am
I
in
in
in
in
the
way
I
shouldn't
say
the
way?
How
much
do
I
have
interaction
inside
of
what
I'm
doing
versus,
facilitating
and
enabling
others
to
do
the
work?
A
So,
for
example,
there
are
a
lot
of
qualified
third
parties
that
can
evaluate
deals.
You
know
big
investment
houses
that
do
this
for
a
living,
and
so
are
we
mo.
Is
our
thinking
more
on
the
side
of?
Are
we
planning
to
touch
most
of
the
deals
and
dig
into
all
the
the
minutia
and
detail?
So
we
understand
it
or
get
qualified
third
parties
to
do
that
for
us,
and
then
the
community
say:
hey,
we've
done
the
due
diligence,
here's
the
work,
and
we
just
want
to
make
sure
that
you're
informed
that
we
believe
it's.
C
I'd
say,
I
think,
we're
leaning
towards
the
second.
Definitely
you
know
so
trying
to
look
at,
say:
asset
managers
who
have
you
know
big,
existing
diverse
books
of
assets
and
we
could
be
a
senior
lender.
You
know
against
their
500
million
dollar
book.
You
know
that
has
18
different,
diverse
investments
in
it.
So
then
we
more
just
have
to
understand
how
they
do
their
individual
investing.
C
B
D
So
obviously
I
agree
with
eric,
but
I
think
it's
it's
it's
the
easy.
The
easy
comparison
is
with
the
at
least
I
always
make
is
with
a
central
banking
system.
So
you
have
a
central
bank
on
the
top
of
everything
that
is
using
commercial
banks
as
intermediaries
to
distribute
lending
across
the
economy.
So
the
the
central
bank
will
score
you
as
a
bank
to
give
you
a
license
and
operate
your
bank
and
interact
with
the
ultimate
borrowers.
D
It's
a
good
comparison,
because
if
we
want
to
scale
scale
our
footprint
in
the
real
world,
we
need
to
work
with
big
counterparties,
and
we
want
to
have
an
arm's
length
relationship
where
they
we
monitor
their
business
practices,
and
we
monitor
what
they
are
doing
is
consistent
with
their
mandate.
We
think
they
should
have,
but
then
we
would.
We
should
give
them
freedom
within
this
mandate
to
to
do
to
run
the
business
the
way
they
see
fit.
C
Thanks
luca,
I
appreciate
that
great
and
I
I
really
just
skipped
over
the
last
slide
but
I'll.
I
remember
it
one.
It's
it's
about
compliance
and
auditing,
not
sexy,
but
it's
a
big
deal.
You
know.
What
is
that
I
think
the
slide
christian
put
there
is
your
lack
of
faith
in
auditing
is
disturbing
with
darth
vader,
and
actually
you
know
to
an
investor
lender.
That's
true!
You
know.
At
the
end
of
the
day,
our
investments
are
only
good
as
the
collateral
underneath
it
you
know
be
at
home
loans,
be
it
construction
loans.
C
You
know
we
want
to
make
sure
that
those
are
being
originated.
You
know
into
the
standards
that
people
said
they
are,
and
you
know,
typically
good
credit
firms
that
invest
in
these
will
have
auditors
going
in
and
reviewing
people's
portfolio
and
their
origination
process
and
their
servicing
process
and
making
sure
they're
doing
everything
they
say
they're
supposed
to
at
times
it's
painful,
but
we
don't
have
the
kind
of
collateral
you
guys,
you
know
have
it
in
crypto,
where
an
eth
is
an
ethan.
You
know
what
it's
worth.
C
If
it's
a
home
loan,
we
got
to
make
sure
you
know
it
was
originated
the
right
way
and
the
government's
not
going
to
say
go
away.
You
know
this
is
not
valid.
It's
things
like
that,
so
compliance
finance
is
an
important
one.
Let
me
touch
on
this
a
bit
in
terms
of
one.
You
know
we
want
to
see.
If
that
the
firm,
the
originator
has
a
sufficient
liquidity.
C
You
know
in
funding,
we
prefer
companies,
you
know
that
are
cash
flow
positive,
so
they're
not
going
back
to
investors
if
they're,
not
cash
flow
positive,
you
know
we're
going
to
want
to
see
a
fair
amount
of
cushion
there.
You
know
we
don't
want
to
take
a
risk
that
they
don't
get
funded
their
next
round
and
then
our
assets
go
bad.
You
know
that
that's
not
a
great
risk
for
us.
You
know
we'll.
Typically,
you
know
want
to
understand
fairly
well
how
their
business
is
going.
C
It
will
ask
for,
like
a
three
year
month,
monthly
operating
model
to
show
us.
You
know
how
they're
doing
where
their
fundings
come
from
things
like
this.
You
know
just
you
want
to
understand
that
whoever
is
originating
your
assets
and
servicing
them
is
going
to
be
with
you
in
the
long
term
as
long
as
your
assets
are
a
risk
and
then
finally,
around
legal,
legal
and
regulatory
here
is
important.
We
want
to
unders,
we
don't
want
to
take
a
lot
of
real
risk
around.
C
You
know
the
lending
relationships,
so
you
know
we
would
want
to
understand
what
are
the
regulatory
regimes?
You
know
the
different
lending
platforms
you
know
operate
in
you
know.
Is
there
a
risk
around
how
they're
lending
you
know?
Needless
to
say,
I
think
we'd
stay
far
away
from
you
know
high
interest
rates
that
start
to
appear.
C
What's
the
word
usury,
you
know
when
they
start
going
about
being
when
people
are
getting
cute
to
try
to
charge
higher
rates
and
they're
legally
supposed
to
in
a
given
domicile.
I
I
mean,
I
don't
think
maker
want
to
do
it
anyway
on
ethical
principles,
but
around
just
general
good
lending
principles.
You
don't
want
to
take
much
regulatory
risk.
You
know,
often
when
you
get
into
regulatory
trouble,
it
can
be
very
painful
and
very
expensive.
C
Okay,
asset
management,
historical
performance,
so
we've
just
talked
about
a
whole
bunch
of
the
functions
and
trying
to
understand
how
the
asset
manager,
actually,
you
know,
underwrites
and
manages
the
risk
on
their
books.
Now
we
will
typically
want
to
understand.
You
know
how
their
track
record
is
gone.
You
know
if
they've
been
around,
you
know
five
or
ten
years,
we'd
love
to
see
monthly
returns
at
the
individual
investment
and
at
the
fun
level
to
understand
you
know
how
their
underwriting
is
gone.
You
know
in
a
sense
we're
just
it's
like
you're.
C
Looking
at,
I
want
to
say
baseball,
that's
not
a
good
analogy!
You're
looking
at
someone's
performance
and
trying
to
see
you
know
how
they
done
historically,
and
why
have
they
done
well
in
some
areas?
And
you
know,
and
not
as
well
in
under
areas
you
know
we're
going
to
see
the
gross
and
net
returns
we're
going
to
want
to
understand
if
they
use
leverage
I'm
going
to
use
debt
against
it
to
make
higher
returns
and
then
we're
typically
going
to
try
to
find
a
reasonable
benchmark.
That's
similar
to
them.
C
So
you
know
how
to
have:
how
have
they
done
against
other
asset
managers
managing
similar
assets?
You
know
you
could
probably
argue
we
don't
want
to
be
with
an
asset
manager.
You
know
who's
consistently.
The
bottom
quartile
of
the
group
that
he
operates
within
that's
that's,
typically,
not
a
great
place
to
be
sorry.
So
get
this
to
go.
C
What
is
all
right,
transaction
financial
structure,
all
right,
let's
get
more
into
the
weeds,
we
don't
have
a
lot
of
time,
but
I'll
I'll
at
least
try
to
hit
some
of
the
highlights.
So
when
you
look
at
the
actual
structure,
someone
proposes
to
us,
this
is
when
they're
pitching
a
proposal.
What
is
it
it's?
Essentially,
it's
gonna
be
the
assets
that
go
into
it.
What
are
the
requirements
around
the
assets
and
then
you
know
who's
getting
paid
when
and
how
I
mean
it's.
C
Basically,
it's
just
it's
a
structure
where
we're
taking
risk
and
hopefully
getting
better
returns
than
what
we're
putting
in
those
are
the
three
parts.
Let's
talk
a
little
more
about
each
one,
so
here's
south
park,
but
we
early
on,
want
to
see
a
transaction
diagram.
You
know
this
is
a
key
thing.
I
mean
it's
only
one
page
typically,
but
it
shows
and
I'll
show
you
examples.
You
know
exactly
how
the
things
being
set
up,
how
collateral
and
funds
move
across
all
the
different
parties.
You
know
usually
to
get
these
things
done
reasonably
well.
C
C
Then
there's
going
to
be
a
priority
of
payments
that
just
kind
of
tells
how
the
funds
are
being
paid
out
of
the
structure.
When
do
we
get
paid
and
then
we're
going
to
care
a
lot
about
collateral
and
account
control.
So
when
collateral
goes
in,
you
know
be
it
home
loans
how's,
it
validated,
you
know,
they're
good
ones,
you
know,
is
there
an
auditing
going
on
and
can
we
get
control
around
the
underlying
collateral?
If
we
have
to,
I
mean
we
need
to
be,
you
know
we
hope
we
don't
have
to.
C
But
if
things
go
ugly,
we
want
to
be
able
to
grab
the
contr
the
collateral
and
do
what
we
need
to
and
then
again
you
know
the
cash
and
the
payment
system
need
to
be
very
solid
and
something
you
know
that's
well
within
our
control,
our
slide
here,
wowder.
I
think
this
is
for
you
but
anyone's
seen
south
park.
C
There's
an
example
where
one
of
the
kids
gets
a
hundred
dollar
check
for
christmas
goes
to
the
bank
to
invest
it
and
the
guy
invests
it
and
says:
oh,
let's
put
it
in
this
currency
hedged
account
and
it's
gone,
and
it's
like
why
he
goes.
Oh
yeah,
sorry,
it's
gone,
you
know.
Bad
investment
maker
does
not
want
to
be
in
that
situation
right.
We
want
to
be
very
careful
where
we're
putting
our
funds
here
is
a
transaction
diagram.
C
C
You
know
we
want
these
to
be
well
thought
out
priority
of
payments.
This
is,
it's
also
called
a
waterfall.
What
is
this
at
a
high
level?
Yes,
here's
the
asset
pool
again
say
it's
home
loans.
You
know
every
you
know
every
month
you
know
a
couple
million
dollars
could
be
a
principle
and
interest
could
be
gathering
up
there.
It's
going
to
be
under
the
control
of
the
spv
issuer.
You
know
in
some
kind
of
bank
account
that's
controlled
by
the
spv.
C
Then
the
deal
structure
part
of
the
deal
structure
is
going
to
allocate
how
these
funds,
every
month,
these
typically
monthly
payments,
are
going
to
be
paid.
There
is
a
very
precise
thing,
called
a
priority
of
payments
or
a
waterfall,
and
typically
how
they're
allocated
senior
expenses
come
first,
you
know
like
trustee
service
or
auditor
hedging
costs,
and
actually
you
typically
want
this
as
the
lender,
because
most
of
this
is
making
sure
that
your
assets
are
being
taken
care
of.
C
You
know
if
you
don't
have
a
servicer,
no
one's
collecting
payments
you're
in
a
really
bad
situation,
so
it
actually
makes
sense
within
reasonable
levels
the
senior
expenses
come.
First
then,
typically,
the
senior
bonds.
You
know
if
we're
gonna
be
the
senior
secured
lender,
then
we
will
come
there.
Then
there
will
be
the
junior
bonds.
If
there's
you
know,
bonds
under
us,
then
often
there'll
be
some
level
of
expenses
that
if
they
exceed
some
cap
that
you've
already
agreed
upon,
they
will
be
paid
next
and
then.
C
C
I
will
note,
there's
many
many
many
variations
of
waterfalls.
You
know
they
all
have
this
kind
of
general
principle,
where
there's
tons
of
nuances
like
for
one
example,
I
think
an
important
example
after
an
event
of
default
when
things
go
very
bad.
Typically,
the
junior
bonds
are
gonna,
be
shut
out.
So
then,
all
the
money
just
goes
to
the
senior
expenses
into
the
senior
bonds.
E
D
Sure
yeah
and
while
we
get
the
questions,
I
just
wanted
to
say
something
to
conclude
this.
On
my
side,
at
least
is
it
seems
a
lot
of
work
and
it
is
a
lot
of
work.
But
our
ambition
here
is
to
step
up
the
game,
educate
the
country
parties
and
show
the
counterparties
out
there
that
they
shouldn't
they
shouldn't
approach
maker,
because
it's
it's
a
not
so
smart
source
of
liquidity,
but
because
it's
a
huge
source
of
liquidity
and
competitive
pricing,
and
but
they
should
be
as
professional
as
as
institutional
as
they
come.
D
And
hopefully,
after
the
first
painful
period,
people
out
there
they
will.
They
will
appreciate
their
competitive
advantage
of
maker
as
a
source
of
liquidity
and
and
align
along
those
expectations
that
we
have
so
the
first,
the
first
collateral
applications
and
the
first,
the
first
reviews.
The
risk
report
risk
reports
that
the
core
unit
will
provide
are
crucial
in
setting
those
standards
and
hopefully
later
those
will
be,
will
be
accepted
by
the
community.
And
there
will
not
be
so
much
work
because
the
stuff
we
receive
is
of
the
quality.
We
expect.
C
A
Yeah
I'll
quickly
jump
and
jump
into
this
one.
So
this
is
something
that
has
has
come
up
in
in
one
or
two
projects
that
actually
were
directly
client
climate
related,
and
we
know
that
there
is
a
number
of
esg
frameworks
out
there,
some
of
them
more
solid
than
others.
So,
at
the
moment,
what
we're
doing
we're
we're
doing
some
research
on
some
of
those
different
frameworks.
The
same
as
for
this
methodology
to
try
to
embed
some
some
of
those
learnings
into
into
this
video
framework.
A
C
So
I'll
see
what
I
can
get
through.
So
when
you
think
about
a
financial
structure,
what's
there
credited
enhancements
is
an
important
part.
Basically,
it's
saying
if
the
deal
doesn't
perform
particularly
well
and
there's
losses
on
the
underlying
collateral,
I.e,
it's
paying
less
than
anticipated,
how
much
how
much
capital
is
underneath
us
that
takes
the
losses
before
we
ever
do
now.
This
is
a
big
deal.
Typically,
you
know.
Most
of
this
protection
is
subordination
and
over
collateralization
I'll
show
an
example,
but
it
means
like
bonds.
C
You
know
and
like
kind
of
equity
underneath
you
so
it
essentially
means
if
there's
a
hundred
dollars
of
collateral,
maybe
we've
loaned
the
first
70
cents
against
it.
Someone
else
is
owning
the
bottom
30
cents
and
the
losses
go
to
the
bottom
30
percent.
Before
we
ever
feel
the
first
one
very
important.
You
know:
there's
some
excess
spread,
there's
some
other
things
I'll
just
leave
it
alone
for
time
and
then
performance
triggers
again.
When
I
say
things
don't
go
well
and
then
we're
protected,
but
like
what
does
that
mean?
C
You
know
how
do
we
help
mitigate
that
risk?
You
know
typically
you're
gonna
have
a
lot
of
triggers
thoughtfully,
set
around
one
like
how
the
assets
are
performing
again.
If
it's,
if
it's
auto
loans,
you
know,
if
you
get
too
many
delinquencies
that
could,
you
know
essentially
shut
down.
If
it's
a
revolving
facility,
there'll
be
no
new
loans,
it
could
shut
down
the
junior
bonds
and
only
we,
the
senior
bond,
gets
all
of
the
cash
same
with
defaults.
You
get
too
many
defaults
over
time.
C
Cash
shortfalls
same
thing
and
under
collateralization,
which
is
just
another
way
of
you,
know
the
thing
not
going
well
and
then
you
know
it's
gonna,
you
know
kind
of
redirect
cash
to
us
at
the
senior
position
and
if
it's
revolving
shut
it
down
at
the
end
of
the
day,
you
want
to
do
good
deals
and
you
don't
want
to
rely
on
your
triggers,
but
they
are
there
to
mitigate
risk.
You
know
if
things
are
going
poorly
and
if
they're
well
thought
out,
they
should
make
a
difference.
C
Here's
credit
enhancement,
here's
an
example.
I
have
to
admit
this
is
a
bit
painful,
but
if
you
want
to
get
what
credit
enhancement
is
bear
with
me
on
this
simple
example,
so
an
originator
sells
an
asset
pool
for
a
hundred
dollars
to
the
spv
wha.
What
does
the
spv
do?
The
spv
sells
a
senior
bond
for
eighty
johnson.
I
apologize
it's
the
senior
bond
for
70.,
my
bad,
so
the
70
right
here.
So
they
sell
a
senior
bond
to
us.
C
They
sell
a
junior
bond
to
another
investor
and
then
the
equity
piece
typically
required
goes
back
to
the
originator,
so
they're
in
the
first
loss
piece.
So
a
hundred
dollars
has
been
put
into
the
structure.
The
spv
and
a
hundred
dollars
of
live
100
has
been
allocated,
but
you'll
note
there's
only
85
of
total
liabilities
right.
C
Let
me
flip
I'll
go
to
the
next
page,
but
you'll
note
that
there's
less
liabilities
than
there
are
assets,
that's
a
form
of
protection
to
the
liabilities,
the
bond
holders.
So
if
we
flip
this
over
same
basic
situation,
I'm
just
looking
really
much
at
the
liabilities,
so
we're
at
70.
Right,
that's
that's,
say:
that's
maker,
there's
another
guy
at
15
percent
who's
in
the
first
loss
or
who's
subordinated
to
us.
He'll
take
losses
before
we
do
then
you've
got
the
first
loss
position.
C
Typically,
the
originator
note
also,
I
said:
there's
85,
there's
only
85
dollars
of
actual
bonds
or
liabilities.
This
extra
15
dollars
of
collateral
beyond
the
debt
values
called
the
over
collateralization.
It's
just
how
much
collateral
exceeds
the
outstanding
value
of
the
debt.
I
hope
that
makes
sense,
so
here's
15
percent
protection
to
both
the
junior
and
the
senior
bonds.
That's
over
collateralization
for
the
senior
bond.
Not
only
does
he
have
the
15
of
the
first
loss.
Piece
he's
also
got
the
junior
bond.
C
The
junior
bond
is
going
to
take
all
the
losses
until
it's
gone
before
the
senior
bond
will
take
a
loss.
So
in
essence,
the
senior
bond
has
30
credit
support.
I
I
made
the
senior
bond
in
green
here
to
basically
say
we're
looking
in
this
from
the
senior
bond
makers
perspective,
where
we
30
of
the
collateral
has
to
blow
up
before
we
start
taking
losses
and
it's
a
mixture
of
the
junior
bond
which
is
subordinated
to
us
and
then
the
over
collateralization,
which
is
just
more
collateralization
than
you
have
outstanding
debt
in
the
infrastructure.
C
This
is
a
key
point.
I
would
definitely
you
know
if
people
want
to
understand,
structure
finance.
These
are
a
couple
of
these
things.
Are
the
hearts
of
it
all
right,
financial,
financial
transaction,
all
right
financial
covenants?
So
not
only
will
we
have
covenants
around
the
asset
performance,
you
know
the
pool
of
credit
cards
if
they
don't
go
well,
we
want
the
structure
to
protect
the
senior
lender.
Us
we
also
typically
are
going
on
financial
covenants
around
the
asset
manager.
C
You
know
they
have
to
have
enough
money
to
you
know
to
be
paying
their
people
to
do
a
good
job.
You
know
underneath
them
the
originators.
The
asset
managers
going
to
the
originators.
You
know
creating
the
loans
you
know
to
be
operating.
Well,
they
go
financial
covenants
on
them
and
the
servicers
as
well.
So
this
could
be
a
whole
bunch
of
kind
of
different
levels
of
financial
covenants.
To
make
sure
everyone
that's
involved,
managing
the
assets
needs
to
be
there
to
do.
C
C
You
know
if
someone's
really
important
to
a
business
and
they
leave,
you
might
have
an
event
to
help
shut
down
risk
at
that
point
and
then
one
of
the
other
things
we
definitely
will
look
to
with
the
asset
manager
is,
if
you
know,
if
they
do
something,
you
know,
if
things
don't
go
well
and
they
get
in
trouble,
what's
the
transition
plan,
you
know
we're
not
gonna
come
in
and
run
their
business.
You
know,
that's
not
our
skill
set,
you
know
we're
passive,
but
what's
a
reasonable
transition
plan
you
know
in
place.
C
All
right
an
asset
base,
we've
talked
a
lot
about
the
structure.
You
know
how
risk
is,
is
allocated
and
paid
and
mitigated
what
about
the
underlying
pool
of
assets.
You
know
that
we
actually
rely
to
get
paid
on
from
first.
As
I
said,
it's
a
big
deal,
whether
it's
a
one-time
pool
you
put
in
a
bunch
of
30-year
mortgages
and
we
make
a
loan
against
it
and
no
more
collateral
versus
a
revolving
one.
C
You
know
when
I
set
a
credit
card
pool
where
maybe
every
month
they
keep
putting
in
more
loans,
and
we
extend
more
funds
generally.
Revolving
pool
is
a
lot
more
work
and
then
so
at
the
at
the
fun
level
and
at
the
investment
level
we
want
to
understand
how
people
you
know
are
doing
this.
You
know
how
do
they
do
their
investments
right?
How
do
they
invest
in
their
individual
deals
and
how
do
they
manage
the
overall
fund?
C
You
know
with
the
whole
group
of
deals,
that's
a
big
deal
and
it's
going
to
be
things
like
the
eligibility
criteria.
You
know
what
assets
are
allowable,
you
know
at
the
deal
and
at
the
fund
level
and
there's
also
going
to
be.
You
know,
issues
and
questions
like
what
are
the
concentration
limits.
If
it's
a
fund,
you
know,
should
you
have
more
than
20
percent
of
it
being
energy
related
businesses,
you
know
being
a
senior
lender.
We
typically
want
to
see
a
lot
of
diversification.
C
Let's
see
all
right
and
then,
as
part
of
the
asset
base,
we
want
to
understand
and
get
confidence
that
the
asset
manager
and
potentially
the
guys
you
know
running
the
originators
under
them.
They
really
know
how
their
assets
are
going
to
perform.
You
know
they
have
sharp
sense
of
how
it
should
perform
in
a
normal
environment.
You
know
how
it
might
perform
in
the
stress.
You
know:
recession,
environment.
You
know
where
they're
going
to
get
in
trouble.
You
know
so
we
we
want
to
see
that
they're.
C
You
know
making
very
thoughtful
asset
performance
projections
that
are
based
on
history.
You
know
and
some
intuition
on.
What's
coming,
you
know
if
we
look
at
someone's
portfolio
and
we're
able
to
make
a
better,
you
know
forecast
of
their
performance
over
the
next
two
years.
That's
a
bad
sign
right.
They
need
to
be
the
experts
in
the
assets
and
really
be
you
know
all
over
their
assets.
You
know,
and
when
do
they
update
these
performances?
You
know
how
much,
how
do
they
track?
C
The
realized
performance
of
a
given
pool
versus
the
expected,
and
when
do
they
know,
there's
a
problem.
You
know,
and
as
part
of
this,
when
you're
they're
forecasting
this
out
in
these
these
assumptions,
we
want
to
understand
the
underlying
like
the
key
drivers
and
how
assets
perform,
and
these
are
typically
loans.
So
we're
going
to
understand
what
kind
of
assumptions
they're
making
around
default
and
prepayment.
C
You
know
the
curves
over
time
that
say
how
these
phase
in
you
know
what
are
the
assets
subgroups
I
mean
if
you
have
a
credit
card
portfolio,
you
assume
everyone's
the
same
credit
and
behaves
the
same
or
you
have
you
know
several
different
types.
You
know
riskier
and
less
risky.
You
know
modeling
them
separate,
you
know
and
then
we're
also
going
to
characters,
interest
rate
and
or
currency
rate
exposure
to
maker.
C
C
E
Yeah
thanks
eric
and
the
christians
for
the
yeah,
the
very
extensive
overview
and
the
explanations,
so
I
put
in
chat.
Maybe
we
can
go
15
minutes
over
just
to
allow
for
additional
questions
if
there
are
any
to
to
get
us
kicked
off.
Maybe
I
I
have
a
question
which
relates
to
the
the
structure
of
the
dao
right
yeah.
So,
as
you
as
you
clearly
laid
out,
a
dao
is,
is,
is
probably
a
pretty
passive
player
and
we
want
to
scale
this
up.
E
C
I
give
you
my
two
cents,
I'm
sure
I'm
not
the
only
view.
I
say
there
is
a
natural
conflict,
let's
be
honest,
but
when
I
think
about
this,
I
think
we
want
to
innovate.
I
think
it's
very
important
to
innovate
around
process.
You
know
openness.
Things
like
that.
Traditional
finance
there's
a
lot
of
problems
around
it.
So
you
know
what
can
define
blockchain
really
do
better
processes,
more
transparency.
C
C
I
think
it's,
I
think
it's
something
the
makers
should
potentially
do,
but
I
think
we
need
to
size
that
very
carefully.
You
know
when
you're
looking
at
potentially
you
know
bad
returns
for
taking
an
innovation.
How
big
a
risk
do
you
want
to
take
there?
My
view
is:
that's
where
we
keep
the
size
manageable
when
you're
putting
out
serious
dollars,
hundreds
of
millions
of
dollars,
plus,
in
my
view,
that
needs
to
be
really
you'll
kind
of
bulletproof
investments.
You
know
very
safe,
I
wouldn't
want
it.
C
Maybe
it
could
be
a
more
innovative
process
around
titling
a
mortgage,
but
I
wouldn't
want
to
take
innovative
credit
risk
unless
you
really
understand
it,
because
I
think
christianity
would
kind
of
laugh.
We
want
to
be
innovative
in
all
areas
except
finding
new,
creative,
innovative
ways
to
lose
money.
I
don't
think
that's
a
good
idea.
A
Yeah,
I
guess
let
me
jump
on
on
this.
One
actually
give
a
little
bit
like
flavor
of
where,
where
we're
coming
from
and
where
I
guess
we
are
going
right.
So
I
think
in
these
I
guess
in
the
experimentation
that
our
real
world
financing
has
been
for
for
the
team.
Since
it's
beginning
we
started,
we
started
with
the
innovation
first
and
figuring
out
how
to
do
the
financial
plumbing
I
guess
later
properly,
so
that
was
kind
of
like
the
very
first
phase
of
what
we're
doing.
A
That's
why
we
did
a
lot
of
experimentation
with
with
a
number
of
projects
actually
particularly
in
parts
of
last
year,
but
then,
as
time
went
on,
I
said
like
okay,
but
this
probably
as
eric
was
allergic
to
it.
Doesn't
it
doesn't
scare
us
as
well
and
we're
doing
innovation,
but
there's
a
lot
of
you
know
patching
that
we
have
to
do
along
the
way.
So,
at
the
end
of
the
day,
the
innovation
that
is
it
is
great
at
the
beginning.
A
We
are
going
to
identify
what
are
the
gaps
in
there
for
like,
for
example,
from
a
governance
standpoint,
how
government
actually
interacts
with
with
hispanic
parties
and
so
on,
and
let's
innovate
there
and
then
and
then,
and
then
we're
going
to
take
other
steps
like
what
eric
was
alluding
to
each
mortgage.
It's
okay
connection.
Those
markets
actually
be
natively
kind
of
issued
on
chain
crates.
A
Okay,
so
we
can
actually
innovate
that
that
we
have
covered
the
basics
of
the
financial
plumbing
underneath
so
that,
actually
you
just
kind
of
you
build
a
good
foundation,
then
you
can
build.
You
know
a
few
good
houses
on
top
of
it.
If
the
foundation
is
is
is
not
appropriate,
then
it's
going
to
be
much
harder
for
us
actually
to
build
houses
or
cities
on
top
of
it
right.
So
so
that's
the
direction
that
we're
going.
D
Yeah,
the
sorry
guys
I
had
to
step
out
like
two
minutes
for
a
call,
and
I
think
there
was
a
question
I'll
I'll
try
to
reply
super
quickly,
given
the
interest
of
time,
so
I
think
we
can
reconcile
the
low
risk
appetite
with
the
innovative
nature
of
a
dao,
because
I
think
we
can
be
innovative
but
being
solid
with
the
credit
quality.
Now
at
the
same
time,
we
need
we
need.
D
We
need
to
maintain
some
kind
of
balance,
because
if
we
go,
for
example
out
there
and
we
have
super
strict
requirements
and
we
require
very
institutionalized
conversations-
obviously
we
will
always
prefer
big,
big,
well-funded
traditional
parties,
because
they
have
done
this
job
for
much
longer
and
they
are
much
bigger.
There
are
a
lot
of
a
lot
of
capital
and
that
will
trump
all
the
all
the
most
innovative
startup
startup
environments
out
there,
which
is
not,
which
is
not
within
the
mandate
of
maker.
D
So
I
think
we
can
definitely
work
at
the
same
time
as
we've
been
doing
so
far
with
smaller
firms
closer
to
the
community
that
are
ramping
up
their
business.
But
obviously
these
these
demands
that
we
set
the
expectations
on
both
sides.
What
does
it
mean?
First
of
all,
obviously
we
would
feel
much
more
comfortable
to
underwrite
and
provide
hundreds
of
millions
of
capital
to
big
companies
like
a
goldman
sachs
of
this
world
than
a
very
small
company
without
track
record.
D
D
So
I
think
if
the
community
wants
real
world
finance
to
work
side
by
side
with
us
with
a
startup
that
is
growing,
then
the
community
will
need
to
understand
that
there
will
be
costs
involved
because
we
will
have
to
dedicate
a
part
part
of
a
resource
or
one
fte
or
more
to
work
very
closely
with
those
with
those
companies
because
they
need
to
grow
and
mature.
Obviously,
if
we
work
with
a
very
institutionalized
counterparty
like
social
general,
we
have
nothing
to
teach
them.
We
just
need
to
find
a
good,
a
good
balance.
C
D
C
If
I
jump
in
you
know,
hopefully
we'll
close,
this
sock
gen
tokenization
deal
in
the
next
in
the
next
two
months
I
mean
so
there's
actually
innovation
available
too,
with
some
of
the
big
parties
you
know
so
I
mean
it's.
I
think
we
should
be
open
to
small
guys,
but
also
there's
some
big
guys
that
really
want
to
start
doing
interesting
things,
and
the
other
point
I
make
is
sock.
Gen,
you
know
is
coming
to
us.
I
think,
for
a
20
million
30
million
dollar
loan
in
their
mind,
they're
innovating.
C
This
is
this
is
a
proof
of
concept.
You
know,
so
they
don't
start
big
either.
You
know
people
who
want
to
do
interesting.
New
stuff
typically
start
smaller.
So
if
you
miss
you
miss
small,
then
as
you
build
confidence,
you
start
growing
over
time.
So
I
mean,
I
think,
it's
interesting,
even
sock
gen,
you
know,
starts
pretty
small
with
how
they
want
to
do
this.
E
Yes,
thank
you.
Eric
we'll
take
as
a
last
question.
The
one
from
chat
so
max
is
asking
maker
dow
can
lend
with
arbitrary
terms.
The
dao
is
not
bound
to
raise
it.
Free
does
real
world
finance
and
sandbox
look
to
bazel
3
as
the
guide,
or
is
it
strategic
for
maker
now
to
lend
to
asset
classes
like
trade,
finance
and
project
finance
that
bazel
restricts.
B
So
luca,
let
me
let
me
answer
the
project.
Let
me
answer
the
project
finance
one,
because
that's.
I
believe
that
that's
my
expertise.
You
know
I'd
love
to
do
more
project
finance
with
maker
because
it
does
have
the
ability,
as
you
correctly
point
out,
max
to
not
be
restricted.
Project
finance
in
some
sense
is
a
lot
more
complicated.
A
lot
more
difficult.
B
Simply
because
you
are,
it
requires
a
hell
of
a
lot
more
due
diligence.
I
mean
you
really
have
to
understand
the
project
and
most
developers
are
looking
for
longer
term
capital.
So
you
know
most
projects
are
looking
for.
You
know
in
the
u.s,
it's
very
short
at
seven,
but
if
you
go
outside
the
u.s,
it's
15-year
terms
and
I'm
just
not
sure
maker
is
ready
for
that.
Yet
the
other
thing
that
would
be
interesting
is
whether
whether
maker
could
participate
as
a
as
a
participant
in
a
in
a
larger
deal.
B
So
you
know
you
have
one
of
the
bigger
banks
that
is
selling
a
participation
or
you
know.
I
worked
on
the
mozambique
lng
project
on
the
financing
side
for
a
number
of
years.
You
know
piggyback
on
the
work
that
all
the
large
international
commercial
banks
are
doing
and
take
a
slug
for
500
million
dollars
simply
because
we
can-
and
you
know
that
you're
relying
on
the
work
that
others
are
doing,
that
would
actually
be
very
interesting.
D
And
if
I
can
add
because
of
the
max
refers
to
the
sandbox
project-
and
I
think
I
can-
I
can
combine
max's
and
louise's
question
here-
I
mean
puzzle,
three
doesn't
doesn't
restrict
or
it
doesn't
restrict
pretty
much
anything.
What
vassal
3
does
is
making
sure
that
for
certain
activities
there
is
a
capital
in
the
bank,
backing
the
risks
and
that
certain
loopholes
that
were
before
used
to
cancel
or
hide
this
business
in
the
balance
sheet,
don't
happen
and
basel
iii
is
very
complicated.
D
Set
of
guidelines
ever
evolving
and
we
have
no
intention
to-
we
are
no
intention
to
to
mimic
basel
iii
also
because
basel
iii
is
a
very
complex
set
of
set
of
requirements
for
a
bank,
mainly
because
a
bank
takes
deposits
from
investors
and
deposits
are
protected
by
the
central
bank.
Now,
at
the
same
time,
banks
are
not
stupid.
As
christian
said,
I've
done
the
events.
D
I've
done
this
work
for
many
years,
so
we
should
learn
from
the
activity
of
from
the
activities
that
banks
have
done
and
from
the
risk
from
the
risk
management
from
the
risk
management
practices.
Now
the
last
one
is
between
providing
capital
being
investors.
There
is
no
difference.
I
think
we
can
provide
capital
through
any
possible
structure.
We
can
provide
capital
to
an
asset
manager,
giving
a
loan
to
an
asset
manager.
We
can
provide
capital
to
an
asset
manager
being
an
investor
in
their
fund.
We
can
provide
capital
buying
a
securitization.
D
We
can
provide
capital
in
any
way.
The
most
important
way
is
we
are
agnostic
and
we
try
to
make
sure
that
the
quality
of
the
credit
that
we
are
on
boarding
is
consistent
with
eric's.
The
the
criteria
the
addicts
eric's
outlined
so
in
such
in
so
much
detail
anything
any
structure
it
works.
We
just
need
to
make
sure
that
the
structure
is
the
right
one
and
hopefully,
in
the
medium
term
those
structures
will
standardize
and
hopefully
go
and
chain.
E
Okay,
great,
thank
you
look
up
for
the
answer,
so
we'll
conclude
here
thanks
christian
eric
luca
will
for
the
presentation
and
the
discussion
we'll
make
the
recording
available
and,
of
course,
the
the
questions
and
answers
that
can
continue
on
the
forum
thread
that
has
also
been
created
and
thanks.
Everyone
for
joining
we'll
see
you
next
time.