RT Journal Article SR Electronic T1 A New World for CLO Equity Investors JF The Journal of Structured Finance FD Institutional Investor Journals SP 57 OP 61 DO 10.3905/jsf.2013.19.3.057 VO 19 IS 3 A1 Saffet Ozbalci YR 2013 UL https://pm-research.com/content/19/3/57.abstract AB Collateralized loan obligation (CLO) equity has been a great investment (with high cash-on-cash return and stable- to-higher prices) in the past few years. Almost any CLO equity investment (irrespective of the structure and manager) has delivered a strong return driven by a benign default environment, low rates, and an attractive asset–liability spread. Since the beginning of 2013, however, tighter loan spreads and widening out of liabilities has made the equity arbitrage very challenging, resulting in a much lower total return for equities from recent vintages. CLO equity should always be considered as a part of an efficient portfolio, given its attractive return profile and low correlation with other asset classes. In today’s market, however, investing in CLO equity based on buy-to-hold strategies no longer works and will significantly underperform an actively managed non-investment-grade CLO portfolio. The ideal solution is to have an actively managed portfolio that also includes junior parts of the capital structure.TOPICS: CLOs, CDOs, and other structured credit, portfolio construction