The case for CLO equity: complementing private equity
Traditional private equity funds – portfolios of privately-owned companies which have been acquired by specialized firms, or “sponsors” – are a mainstay allocation for many institutional investors. These funds account for a significant portion of the alternatives exposure in public pensions, endowments, family offices, and other sophisticated, long-horizon investors.
This paper discusses why adding CLO equity to private-equity alternatives allocations may be worth considering. Overall, this unique asset class provides benefits for institutional investors seeking increased potential for diversification, liquidity, and historically favorable outcomes in higher interest rate environments.
- The headwinds facing private equity
- A comparison of CLO equity to private equity
- The case for adding CLO equity to an alternatives allocation
An environment of higher-for-longer interest rates is likely to tilt returns in favor of debt holders and be a potential advantage to the current vintage of CLO equity.
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A word on risk
All investments carry a certain degree of risk, including loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Any investment in collateralized loan obligations or other structured vehicles involves significant risks not associated with more conventional investment alternatives. The portfolios described herein are dynamic and may change over time. Use of the investment process tools and techniques described herein is no guarantee of investment success or positive performance.
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