According to a study by Larry Cordell at the Federal Reserve Bank of Philadelphia and Michael Roberts and Michael Schwert at the Wharton School, University of Pennsylvania, collateralized loan obligations (CLOs) have furnished asset owners with outsized returns for those investors allocating to the equity tranche.  

The study covered 2,216 CLO deals from August 1997 through March 2021.  

The paper found that CLOs provided significant resilience to market volatility. This resilience owes to CLOs being closed-ended products regarding their financing structures, which protects equity investors from rollover risk and capital outflows. The research also found that the average CLO equity investment results in a net present value of 66 cents on the dollar, after fees.  

In 2021, pension funds heavily invested in CLOs.  

Deep Maji, senior managing director at CLO equity specialist Oxford Funds, said that, “The interest from pension funds, various insurance companies, and other pools of capital has grown because I think that the asset class has historically been less understood and people were perhaps concerned with the mark-to-market volatility.”