In a fixed income environment with historically low yields, CLO tranches can provide attractive yield opportunities. Over the last several years, the CLO market has evolved and created opportunities for many investors, while regulatory changes have led to stronger CLO structures and improved protection and transparency. As a result, the investor base has broadened beyond banks, and now includes investment managers, pension funds, insurance companies, and corporations.
As a manager of CLOs, Shenkman brings significant experience to all aspects of analyzing and managing CLO investments. Our investment approach to this asset class is comprehensive and takes into account the investment manager, the transaction structure, and the underlying loan collateral.
Why Invest in a Dedicated CLO Debt Portfolio?
As a result of the tranching of risk that is inherent in a CLO capital structure, a dedicated portfolio can be constructed to meet various investors’ risk and return objectives. We believe investment advantages can include:
- An investment-grade CLO debt portfolio can provide a significant yield advantage over Barclay’s Aggregate-based strategies.
- Given the historical ability to withstand severe default environments, a CLO debt portfolio should provide protection against principal loss.
- The floating rate feature of CLO debt protects investors in the event of a rising rate environment.
- The potential for enhanced returns exist through price appreciation as most CLO debt tranches are priced below par.
- Significantly enhanced credit diversification is achieved through exposure to hundreds of underlying loans.