CLO Private Debt Funds


Aargon Funding • Debt Portfolio Investing

CLOs - Collateralized Loan Obligations
A growing part of the broader $1.3 trillion CLO market, private credit CLOs offer the potential for higher spreads relative to broadly syndicated CLOs—creating an interesting opportunity for long-term buy-and-hold investors.
CLOs (Collateralized Loan Obligations) are actively managed, diversified pools of senior-secured loans primarily to large U.S. corporations. Underlying CLO pools typically contain hundreds of floating rate, high yield, below investment grade loans. Active management is important for CLO managers, who are empowered to navigate changes in credit markets and individual companies.
Securities issued by CLO pools are available in a variety of tranches. Each tranche offers a risk/return profile based on its seniority and its order in the claims on the interest and principal payments from the underlying pool of loans. CLO tranches range from investment grade (AAA - A) to mezzanine, which include senior and junior mezzanine that are primarily non-investment grade (BBB - B). CLO equity receives the residual interest available after payments to other tranches. Investors can select the type of CLO that fits their objectives.
CLO investors represent a diverse, global community. CLOs benefit from high daily trading volumes, liquidity, and an expanding investor base. The global CLO investor community encompasses banks, insurance companies, pension funds, hedge funds, and asset managers, as well as mutual funds and ETFs.
While CLOs offer many benefits, investors must understand the risks. Credit risks include problems with underlying borrowers and potential losses from default. Market risks include illiquidity during periods of distress. People risk refers to the wide dispersion of performance among CLO pool managers. Reinvestment risk results when underlying loans are prepaid, potentially interrupting cash flows. These are just a few of the risks CLO investors should know.
Investing In CLO Private Debt Funds

Private credit CLOs (also known as middle market CLOs) are generating a fair share of investor interest, and perhaps rightfully so given the market's recent growth. At the end of last year, private credit CLOs made up roughly 11% of the broader $1.3 trillion CLO market.(1)

In 2023, $27 billion of private credit CLOs were issued by twenty-eight managers, which represented over 20% of the total new issue CLO volume.(2) This trend is expected to continue, with private credit CLOs forecast to account for more than 30% of total issuance this year.(3)

This is largely a reflection of the growth in private credit loans more broadly, a market that has increased in size to nearly $1.7 trillion as companies have continued to seek non-bank financing as an alternative to the broadly syndicated market.(4)

Given the rapid expansion of this asset class and its projected growth ahead, a deeper analysis of the benefits of private credit CLOs, and how they compare to broadly syndicated CLOs, is essential for investors to understand.

Call today to schedule a consultation with a Aargon Funding CLO Investment Advisor.

1. Source: BofA. As of January 5, 2025.
2. Source: BofA. As of January 5, 2025.
3. Source: JP Morgan. As of November 21, 2023.
4. Source: Citi. As of January 26, 2025.

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