Retail investors have become important players in the leveraged loan market, and this creates both challenges and opportunities for CLOs, still the biggest buyers of loans.

Over the past several years, collateralized loan obligations have had to compete with bank loan funds to acquire collateral for deals. More recently, retail investors have been yanking money from loan funds, sometimes $1 billion or more a week. This has worked to the advantage of CLOs, which were happy to buy the loans that fund managers unloaded to meet share redemptions. For example, Octagon Credit Investors took advantage of a dip in loan prices over the summer to quickly print a CLO at the request of one of its own investors, using the proceeds to snap up collateral, largely in the secondary market.

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