The London-based specialist corporate credit manager Fair Oaks Capital has received approval from the Luxembourg Financial Sector Supervisory Commission (CSSF) to launch the investment industry’s first European-domiciled, euro-denominated CLO exchange traded fund (ETF), said a from the firm issued on 29 August 2024. The Fair Oaks AAA CLO ETF (FAAA) invests in AAA-rated collateralised loan obligations, or CLOS.
Collateralised loan obligations are single securities backed by a pool of debt, according to , which adds that these “bundles of loans” are ranked below investment grade. Investors receive debt payments from the underlying loans but also take a risk that borrowers default, explains Investopedia. To make up for that risk, CLOs offer investors more diversity and a potential for higher-than average returns.
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“Fair Oaks AAA CLO ETF offers investors liquid exposure to a diverse pool of AAA-rated floating-rate assets, which have a superb track record of no defaults since the first AAA-rated CLO was issued over 25 years ago,” commented co-founder and Fair Oaks partner Miguel Ramos Fuentenebro. “Our core belief is that the CLO market generates consistent, repeatable, and superior risk-adjusted returns over multiple market cycles versus other credit strategies.”
The ETF will be listed on on Deutsche Börse’s electronic securities trading platform Xetra on 10 September, said the press release, and on the London Stock Exchange shortly after. The “diversified CLO portfolio in an actively managed ETF wrapper” will be registered for distribution to investors in European countries, including Austria, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, the Netherlands, Spain, Sweden and the UK.
Established in 2013, Fair Oaks Capital manages over $3bn in assets as of 31 July 2024 in CLOs and corporate credit-based strategies.