It’s taken several years and rock bottom interest rates, but more and more investors are taking a gander at the riskiest tranches of collateralized loan obligations, known as the equity. And they like what they see.
When the financial crisis struck, the biggest buyers of CLOs, most notably SIVs or structured investment vehicles, disappeared, and issuance ground to a halt. When the market slowly and sporadically recovered during 2010 and 2011, it was because some managers were able to find a small number of buyers for the least-risky, triple-A rated tranches and hold on to the riskier tranches themselves. Most of these managers were affiliated with private equity shops and so had deep pockets.