Senior Tranche LPs

Investors often want different kinds of risk exposure and yield on the same asset class. In the traditional finance world, one way to achieve this is by using structured finance products and introducing a tiered investment structure or in other words, different tranches. This means that investors can invest in the same asset through different classes of shares with different risk/return profiles

While there can be several different tranches in structured finance products, Casten's default implementation is a common two-tiered structure, with two different tranches. In finance, this is usually called an A/B tranche or junior/senior tranche structure. In this case, the first class of shares (A/Senior class) usually has a rather stable but lower return than the second class (B/Junior class). In exchange, the junior class usually has higher, but also more variable returns, as it protects the senior class from losses (e.g. from defaulted assets).

In essence, Senior tranche holders supply to the senior pool, protected by the first loss capital supplied by the junior tranche holders.