Cross Collateralization

It's not a fancy term. All it implies is that the bad...whatever...is mixed with the good...whatever.

You're a fancy-pants hedge fund manager. You get 20% of profits from your set of investments, into which Limited Partners have given you money to drive. You invest $1 million into SmutFlix, which goes up 10x in exactly 1 year, to be worth $10 million at the end of the year.

You'd love to take 20% of the $9 million in profit and call it a day. But your portfolio's performance is cross-collateralized. And no, this has nothing to do with Jesus. Unfortunately, you invested $20 million in CrapFlix, which ended the year almost cut in half. Your initial $20 million is now worth just $11 million; it wiped out all of the $9 million in gains from SmutFlix.

So your year end total, having made just those two investments?

Zero. No profits. No losses. And you don't get any of that 20% of profits, or carry...because your investments were cross-collateralized for the calculation of attributable investor profits.

The more common parlance refers to debt or loans. Like...debts on one building might have been awesome, but debts on three other buildings are in trouble. Behind in payments with no clear path to solvency. The debts on all four buildings will have been cross-collateralized as if they were all one loan.

Maybe stay away from the streaming services for a while.