The role of CLOs in today’s market, understanding and assessing the investment potential

Structured products are no stranger to the limelight. Once only garnering interest from niche Wall Street trading floors, collateralized debt obligations (CDOs) and mortgage-backed securities (MBS) have become household names, as these products were cited as primary culprits of the financial system meltdown in 2008. Now, as the world continues to grapple with the fallout stemming from the COVID-19 outbreak, structured products are back in the forefront. This time, fingers are pointed at collateralized loan obligations (CLOs) as many believe they may pose an outsized risk in the current market environment. In this note, we discuss why we disagree with these assertions, and why we believe, if accessed correctly, CLOs present a source of opportunity.

CLOs defined

Before determining their investment merits, it is necessary to define what CLOs are—and perhaps more importantly what they are not. CLOs are structured credit products backed by pools of corporate loans. 

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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