Sharad Vohra, Astra Asset Management 

EUR CLOs were born as an asset class in the year 2000; total issuance that year was EUR 2.4 billion and reached an all-time peak of EUR 42.6 billion in 2007, just before the great financial crisis (“GFC”) of 2008. Post GFC the new issue EUR CLO market started back in earnest in 2013 in its current form (also known as 2.0 CLOs or Post-Crisis CLOs) and has since seen very healthy issuance every year. The underlying assets in a EUR CLO are primarily senior-secured corporate loans that have a first lien on assets of the underlying obligor. CLOs provide exposure to diversified portfolios of loans which are managed by professional CLO managers.

As an asset class, EUR CLOs in general and the investment grade tranches in particular have provided investors with higher yields relative to identically rated corporate bonds (especially in periods of rising rates) and have provided “shock absorbers” in the form of credit enhancement and other structural features which have been effective risk mitigants during times of stress (more details below). CLOs are an efficient way for investors to tailor their risk and exposure to the leveraged loan asset class by either taking a more conservative/de-leveraged exposure via participation in the AAA-BBB tranches of the capital structure, or a more leveraged exposure via participation in the non-IG tranches and CLO Equity. CLO tranches are mostly structured as floating rate securities and therefore have minimal interest rate duration This article further explores why an allocation to EUR IG CLOs should be an essential part of an investors’ fixed income/credit allocation...

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This article has been prepared by Astra Asset Management UK Limited (Astra). Astra is authorised and regulated by the UK Financial Conduct Authority and is registered as an Investment Adviser with the US Securities Exchange Commission, solely in relation to US persons. The article comprises Astra’s opinion, it is not investment advice and does not comprise a recommendation to enter into any transaction or to follow any investment strategy. Any future-looking statements may comprise hypothetical information, and you should carefully consider the risks inherent to such information when considering this article. Astra will not accept any liability based on the article or any errors or omissions therein. You should obtain professional advice before entering into any transaction or other investment decision. Capital invested is at risk, including of total loss.