Animal Spirits Podcast
Talk Your Book: The CLO Playbook
May 5, 2025
Shiloh Bates, Partner and CIO of Flat Rock Global and author of "CLO Investing," joins the conversation to discuss the intricacies of collateralized loan obligations (CLOs). He explains how CLOs perform during recessions and the factors to consider in CLO equity investing. The talk covers the dynamics of private credit, highlighting investment strategies amidst economic uncertainty and the importance of selecting top-performing CLO managers. Bates also shares insights on the education needed for navigating risks while maximizing income opportunities.
38:02
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Quick takeaways
- CLOs provide flexible financing for private equity, allowing for high yields and attracting investors despite economic volatility.
- Investing in CLOs requires understanding risks and fund structures, emphasizing the importance of education for informed investment decisions.
Deep dives
Understanding CLOs and Their Role
Collateralized Loan Obligations (CLOs) serve as a pivotal financing tool for private equity firms, as they package loans to businesses and sell them in different tranches to investors. Unlike conventional banking practices that have tightened since the 2008 financial crisis, CLOs allow for more flexible financing solutions, enabling private equity firms to pursue leveraged buyouts. These loans, typically backed by robust cash flows, provide high income potential, often resulting in attractive yields for investors. The structured nature of CLOs not only diversifies risk but also positions investors for income during volatility, as they hold senior secured loans that offer priority in repayments.
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