The rise of CLOs in the global financial system

The integrity of the global financial system has been endangered by a number of external shocks to the economy over the past 20 years, underscoring the necessity for proper portfolio diversification to safeguard investors from negative market conditions.

More recently, collateralized loan obligations (hereafter CLOs) have come to surface as a fast-expanding alternative investment vehicle. CLOs have witnessed remarkable growth since their emergence in the late 1990s, with approximately $900 billion outstanding as of 2021 according to the Bank of America Global Research. Not surprisingly, the main factor making CLOs seem resilient in the face of future economic downturns is not new. The flexibility of the CLO structure was frequently acknowledged as a feature that may help to reduce the systemic risk posed by CLOs in the case of a crisis, even as worries about skyrocketing corporate debt and subpar credit quality grew in the years preceding 2020. The annual sales of new US CLOs hit a record during 2022, as the value of new issuance reached approximately $129.3 billion, surpassing the previous high set in 2019.

Volta Finance Ltd (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.

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