New asset classes rarely come along, but Fred Hubler flags one worth a closer look: the collateralized loan obligation, or CLO. Though CLOs date back to the 1990s, when banks and insurers first used the structure for regulatory capital relief, the market has since grown into a $1 trillion industry in the U.S., with product sponsors now opening access to accredited retail investors through CLO funds. Hubler focuses specifically on CLOs created after the 2008 financial crisis, known as CLO 2.0.
He explains that a CLO is technically a special purpose vehicle that issues debt and equity to purchase loans, essentially functioning like a small company funding its loan-making activity, managed day-to-day by a collateral manager. CLO 2.0 structures typically require diversification across issuers and industries, must meet specified average portfolio rating standards with limits on CCC-rated loans, and restrict the collateral manager’s trading activity to add further protection around the underlying assets.
Not your typical fixed income: CLOs have quietly grown into a trillion-dollar market that’s now opening up to accredited retail investors.
Get the full picture on Forbes: Unlocking The Power Of CLOs: A High-Yield Weapon For Savvy Investors