CLO managers typically compete with mutual fund managers for below-investment-grade corporate loans. Highland Capital is planning to offer a mutual-fund-like vehicle that will invest in collateralized loan obligations.
On Monday, the U.S. money manager announced the launch of an undertaking for collective investment in transferable securities (UCITS), a kind of fund that can be sold to any investor within the European Union, that will invest in both loans and CLOs, as well as other kinds of structured products in the U.S. and Europe.
In a press release, co-founder and chief investment officer Mark Okada said that the new product would help extend Highland Capital’s reach among European investors.
"The UCITS framework provides a number of advantages for investors, and with Highland's structured credit expertise and experience managing loan and CLO portfolios in liquidity-driven vehicles, we are uniquely qualified to execute this strategy," he said.
The UCITS will be overseen by Okada, along with Highland partner and co-CIO Trey Parker and Neil Desai, managing director and structured products portfolio manager.
Highland developed the product to meet the growing demand for floating-rate strategies among European investors. Such strategies are relatively uncommon within the broader UCITS fixed-income universe, forcing investors into more duration-sensitive strategies for income generation.
The fund, which aims to generate high current income with the potential for incremental return through capital appreciation, thus provides a valuable option for income-seeking investors at a time when interest-rate risk is a growing concern.
The fund invests in U.S. and European structured products through a combination of fundamental security analysis and dynamic allocation across ratings categories. The portfolio primarily consists of high quality, resilient investment-grade CLO debt, focusing on minimizing credit risk—a key consideration at this point in the credit cycle.
The Highland Flexible Income UCITS Fund is hosted on the Montlake UCITS Platform, a leading independent platform for UCITS funds that provides investors with access to a range of liquid, transparent and regulated investment products domiciled in Dublin.
Highland has appointed Bury Street Capital, a London-based institutional capital-raising firm, to represent it in the U.K., continental Europe and the Middle East. In this context, Bury Street will act as the distributor of the UCITS fund.
Highland manages secondary CLO investments in a number of other vehicles, including mutual funds, private funds and separate accounts.