THE AAA CLO UPGRADE

High-quality CLOs offer a default-free history of attractive risk-adjusted returns

The CLO Story Institutional Access Added Insights
The CLO Story Institutional Access Added Insights

WHY CLOS BELONG IN YOUR PORTFOLIO

Allocating to collateralised loan obligations, or CLOs, can improve strategic positioning by adding resilient assets with a history of outperformance and low correlations versus traditional fixed income. Their attractive yields, floating rate coupons and position at the top of the capital stack contribute to a compelling case amid uncertainty surrounding rates and economic growth. Moreover, with a default-free track record, CLOs from the AA and AAA tranches offer exceptional stability.

INSTITUTIONAL-QUALITY ACCESS TO CLO OPPORTUNITIES

With $881 million in total assets under management, PGIM’s fixed income platform is one of the industry’s largest and most experienced active managers, offering institutional-grade access to CLO opportunities through its AAA CLO strategy, managed by a dedicated team of over 30 professionals.

GLOBAL REACH

Operating across the U.S. and Europe, PGIM manages $144 billion in securitised products. As the world's fourth-largest CLO manager2, its team of more than 30 investment professionals averages 20 years of experience.

SOURCING STRENGTH

As a top 10 issuer in the JPM CLOIE Index3, our ability to execute large and complex trades provides a distinct sourcing advantage.

DEEP MARKET ACCESS

A longtime participant in both primary and secondary markets, relationships, resources and expertise enable us to structure bespoke solutions and negotiate terms.

Source: PGIM. AuM & staffing as of 30 June 2025.  1. Source: PGIM, CLO market data as of 31 January 2025  2.. Source: Creditflux, 30 June 2024.  3. Source: JPM CLOIE, as of 28 Feb 2025.​

Political Risk: The value of the Fund’s investments may be affected by uncertainties such as international policy developments, social instability and changes in government policies. This can result in more pronounced risks where conditions have a particular impact on one or more countries or regions. 

CLO Risks: The Fund invests a substantial proportion of its assets in senior tranches of CLOs. However, there is no requirement that the Fund’s investments be made at the most senior level of notes issued by the relevant CLO vehicle. CLOs, like all debt securities, are subject to the risk of default of principal and interest. CLOs are subject to credit, interest rate, valuation, and prepayment and extension risks. It is possible the even senior CLO debt tranches could experience losses due to default, downgrades of ratings of the underlying collateral and the default of the lower tranches, market anticipation of defaults and investor aversion to CLOs as an asset class. Some of the loans in which an underlying CLO may invest and to which the Fund may indirectly be exposed may be “covenant-lite”, which means the loans or obligations contain fewer financial maintenance covenants than other loans or obligations (in some cases, none) and do not include terms which allow the lender to monitor the borrower’s performance and declare a default if certain criteria are breached. An investment by the Fund in a CLO holding loans may potentially hinder the ability to reprice credit risk associated with the CLO. As a result of this risk, the Fund’s exposure to losses may be increased, which could result in an adverse impact on the Fund’s net income and NAV. 

Regulatory Risks: Adverse developments with respect to CLO managers, such as regulatory issues or other developments that may impact the ability and/or performance of the CLO manager, may adversely impact the performance of the CLO securities in which the Fund invests. Investors should be aware that the Investment Manager and the Fund will be subject to the Securitisation Regulation, which may be amended over time. The nature of such amendments and their impact on the Fund are unknown. 

References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.

 

The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.

 

Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.


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