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CLOs: How they work

Collateralized loan obligations (CLOs) are attracting increasing attention as investors broaden their horizons in the search for yield. While CLOs offer above-average returns versus other fixed income strategies, some investors may be intimidated by their complexity. We’re here to help.

What is a CLO?

A CLO is a portfolio of leveraged loans that is securitized and managed as a fund. Each CLO is structured as a series of “tranches,” or groups of interest-paying bonds, along with a small portion of equity.

CLOs have changed a lot over the years, getting better with age. The current vintage, CLO 3.0, began in 2014 and reduced risk compared with its predecessors by eliminating high yield bonds and adhering to the Volcker Rule and other new regulations.

Volta Finance Limited (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.