Leveraged loan borrowers might select to prepay their loans in pieces or utterly. While skilled CLO managers may anticipate prepayments, they’re nonetheless unpredictable. The dimension, timing, and frequency of prepayments could doubtlessly disrupt money flows and problem managers’ ability to maximise portfolio worth. CLO correlations versus other fixed income categories are relatively low, meaning that many CLOs have traditionally increased the efficient diversification to a broader portfolio. Following the ramp-up period, the manager can reinvest all mortgage proceeds, either purchasing or promoting financial institution loans to enhance the portfolio’s credit high quality. Investors also can diversify a portfolio by proudly owning mutual funds, EFTs, or variable annuities.
