CFOs and COOs in private markets face a growing challenge: meeting investor demand for access and yield while safeguarding operational resilience. Structured vehicles — particularly Collateralized Fund Obligations (CFOs) and Rated Note Feeders — have become powerful tools for broadening distribution and optimizing capital structures.

But with opportunity comes operational and governance complexity. The question is not only whether these vehicles can be launched, but whether they can be run with the rigor investors, auditors, and regulators now expect. The answer often hinges on the choice of the collateral and fund administrator — and whether they can provide the control, transparency, and scalability leadership teams require.

Collateralized Fund Obligations (CFOs)

CFOs transform pools of private market fund interests into multi-tranche vehicles, offering investors differentiated risk-return options. For CFOs and COOs, they bring both opportunity and exposure.

Operational Issue	How the Right Fund Administrator Solves It
Complex Waterfalls	Errors in multi-tranche allocations can result in misstatements that damage investor trust. Administrators with automated waterfall engines provide accuracy, control, and audit-ready assurance.
Complex Waterfalls SPV and Jurisdiction Complexity	Managing multiple SPVs across borders strains finance teams. Experienced administrators centralize multi-jurisdiction activity into coherent reporting, reducing risk and inefficiency.
Transparency Pressure	Investors demand real-time tranche-level performance. Without it, credibility suffers. Leading partners deliver dashboards and tailored reporting that reinforce confidence.
Liquidity Interdependencies	Stress in one tranche can ripple across the structure. The best administrators use stress-testing and liquidity modeling to give executives foresight into risks.
Regulatory and Audit Scrutiny	Errors invite prolonged audits or regulatory intervention. Administrators with robust compliance frameworks help CFOs and COOs demonstrate institutional-grade governance

Rated Note Feeders

Rated Note Feeders offer a scalable way to open private market strategies to yield-seeking institutions such as insurers. But they bring challenges that land squarely on the desks of CFOs and COOs.

Pitfall	How the Right Fund Administrator Solves It
Cash Flow Matching	Liquidity gaps between fund distributions and feeder obligations can create reputational risk. Administrators with real-time reconciliation systems prevent mismatches and protect investor confidence.
Interest Rate and FX Risk	Manual oversight of accruals and currency flows risks financial misstatements. Strong partners automate interest and FX processes, delivering control and accuracy.
Investor Reporting	Yield-focused investors and ratings agencies demand consistency. Administrators provide timely, investor-grade reports, ensuring alignment with external expectations.
Regulatory Complexity	Cross-border feeders invite compliance scrutiny. Administrators with multi-jurisdictional expertise help executives demonstrate governance and avoid regulatory missteps.
Operational Bottlenecks	Manual reconciliations and covenant monitoring tie up finance teams. The right partner uses automation and scale to streamline operations and free resources.

Alter Domus: Our structured vehicle expertise  

For finance and operations leaders, the choice of fund administrator is ultimately about control, credibility, and scalability. The strongest partners bring depth of expertise in structured vehicles like CFOs and rated feeders, combined with breadth across the wider private markets ecosystem — commingled funds, co-invests, SMAs, and SPVs. This breadth matters: it allows CFOs and COOs to consolidate providers, reduce operational fragmentation, and ensure consistent governance across all fund types.

The right administrator also provides confidence that every process — from cash allocation to reporting — can withstand investor, auditor, and regulatory scrutiny. They invest in technology to minimize manual intervention, deliver transparency that strengthens investor relationships, and act as proactive partners in anticipating risks before they materialize.

CFOs and COOs today are not simply managing back-office operations; they are responsible for safeguarding investor trust and enabling their firms to scale. Structured vehicles such as CFOs and Rated Note Feeders magnify both the opportunity and the operational risks of private markets.

Credit markets have entered a phase of rising complexity. Competitive pressure, evolving regulatory requirements, and increasing operational demands now make an efficient, robust middle office infrastructure a strategic imperative for private markets managers.

Since the height of post-crisis bank retrenchment, private credit and broadly syndicated loan (BSL) markets have filled much of the gap. Managers today are working with increasingly intricate structures—unitranche, hybrid financings, NAV loans, leveraged loans with complex covenant packages—each of which places heavier demands on operations. At the same time, investor expectations around speed, transparency, and data consistency are higher than ever.

Drivers of complexity

• Shorter settlement cycles and tighter turnarounds. U.S. markets have already transitioned to T+1 settlement, compressing reconciliation, trade capture, and cash settlement timelines. Delays or errors are far less forgivable in this environment.

• Regulatory and disclosure pressures. ESG reporting, borrower-reporting requirements, increased focus on transparency, and heightened regulatory oversight are placing new burdens on middle offices.

• Volume and diversity of instruments. Managers are handling more deals per year, across more jurisdictions, with different structures—unitranche, participation interests, hybrid debt, multiple servicer arrangements—each introducing unique reconciliation and risk-management challenges.
• Fragmented systems and manual workflows. Silos across front, middle, and back offices, inconsistent data feeds, and lack of real-time visibility multiply operational risk. Duplicate work, delayed reporting, and mismatched data remain common pain points.

What effective middle office support looks like

To manage this complexity without ballooning costs or risk, many firms are partnering with specialist providers offering scalable, tech-enabled middle office services. Effective support often includes:

• Loan and Agency Services — Full loan accounting, agency or sub-agency responsibilities, servicing of covenant and structural tests, notices, interest and principal payments.
• Monitoring and Reporting — Harmonizing borrower data, standardized and bespoke reporting (financial, ESG, compliance), custom dashboards, regulatory disclosures.
• Trade Capture and Settlement — Ensuring trades are captured accurately, settled on time, correct counterparties engaged, complex or distressed trades handled properly.
• Technology Integration and Automation — Proprietary platforms and data pipelines that reduce manual touchpoints, maintain an auditable “golden copy” of loan data, and support cross-jurisdiction operations.
• Process Design and Risk Management — Workflow standardization, reconciliation procedures, audit controls, error mitigation practices, and alignment of operating models with regulatory expectations.

Why it matters strategically

In 2025, the middle office is no longer just about cost efficiency—it is about operational resilience, competitive differentiation, and investor trust. Firms unable to keep pace with settlement, reporting, or regulatory expectations risk lost deals, higher costs, reputational damage, or worse.

A strong middle office backbone allows credit managers to focus on what they do best: sourcing, underwriting, and structuring. Meanwhile, operations can be confident that deals are administered, data is reliable, and risks are identified early.

Alter Domus: a proven operational backbone

Alter Domus combines scale, expertise, and technology to help managers meet these challenges head-on. With a global team of 6,000 professionals across 23 jurisdictions, we bring consistency across time zones and markets. Our role administering more than $3.5 trillion in assets reflects both the trust placed in us by leading credit managers and our ability to deliver at scale. Beyond the numbers, what truly sets Alter Domus apart is the strength of our integrated platform: proprietary technology, deep market knowledge, and a service model designed to simplify complexity and give managers confidence in their operations.

In the dynamic landscape of private markets, every General Partner (GP) has unique operational needs and preferences. At Alter Domus, we understand that a one-size-fits-all model simply doesn’t work. Instead, we adopt a consultative approach, collaborating with each client to define a co-sourcing strategy that aligns with their specific requirements.

Whether it’s supporting a single process like Form PF reporting or managing full fund accounting cycles within the client’s infrastructure, our flexibility ensures that we meet diverse operational contexts. 

Here are some examples of how we empower GPs through customized services and expertise: 

Typical Capabilities Include:

• Fund Accounting: We prepare books and records using the client’s technology platform, with workflows designed for dual review and sign-off.
• Capital Activity: We calculate and format capital calls, distributions, and notices, while clients retain approval rights and manage LP communications.
• Regulatory Reporting: Our teams collect, map, and format data to comply with evolving requirements.

By partnering with us, internal GP teams can concentrate on oversight and strategy, while our dedicated professionals manage execution within a clearly defined control framework. 

Making the Shift: Practical Considerations:

Transitioning to a co-sourcing model doesn’t mean overhauling existing systems or starting from scratch. With years of implementation experience, we guide clients through a structured transition focused on clarity, integration, and flexibility. 

Through our extensive work with clients, we’ve identified three key building blocks essential for unlocking the full potential of a co-sourced operating model: 

1. Define the right scope: We pinpoint operational areas under pressure, such as:

• Fund closings and reconciliations
• Capital statements and investor notices
• Data preparation for regulatory reporting
• Waterfall modeling and fee calculations

2. Maintain System Continuity: Clients keep their platforms while we securely integrate into their ecosystem, ensuring a single source of truth and avoiding fragmentation.

3. Establish Strong Governance: We align with each client’s compliance and oversight model, ensuring clear roles, documentation, and audit trails. Managers retain ultimate responsibility, while our teams execute defined workflows according to agreed service-level agreements (SLAs).

Figure 1 – The Benefits of Co-Sourcing with Alter Domus

Benefit	How it Helps
Internal Oversight	Control over systems, data, policies, and approval processes remains in-house
External Execution	Alter Domus executes defined tasks at scale, with speed, accuracy, and rigor
Data Ownership	Clients maintain full ownership of their infrastructure and data environment
Regulatory Readiness	Respond to changing rules with agile support and specialist knowledge.
Investor Responsiveness	Meet LP reporting demands faster and more consistently.
Operational Scalability	Expand or contract support without internal hiring constraints.
Access to Talent	Tap into deep experience across private equity, private credit, and real assets

Co-Sourcing: A Model for Long-Term Resilience

For private markets managers, operational resilience transcends mere business continuity; it’s about forging systems and partnerships that can adapt and thrive in an increasingly complex environment. Co-sourcing provides the perfect balance: the stability of internal oversight combined with the executional strength of a specialist partner. 

At Alter Domus, we view co-sourcing as a strategic decision rather than just a service model. It empowers asset managers to focus on what truly matters: creating value for investors, meeting regulatory expectations, and growing with confidence. 

If you’re reevaluating your operating model or exploring how co-sourcing could enhance your structure, we’re here to assist. Alter Domus has extensive experience supporting transitions of all sizes and complexities—whether you’re managing a single strategy or adding new strategies.

Securitisation has become an indispensable tool for institutions, asset managers, and asset owners. This sophisticated financial instrument offers a powerful trifecta: effective risk management, enhanced liquidity, and streamlined capital structures.

For those contemplating the incorporation of a securitisation vehicle, a comprehensive grasp of this intricate yet potentially lucrative process is crucial. By mastering its complexities, you’ll gain the confidence to navigate challenges adeptly and fully harness the myriad benefits securitisation offers, positioning yourself at the forefront of modern financial strategy.

What is Securitisation and why is important?

Securitisation is the process of pooling various types of financial assets, such as loans, mortgages, or receivables, and converting them into marketable securities. These securities are then sold to investors, allowing the originators to free up capital and manage risk more effectively. The cash flows generated from the underlying assets are used to pay interest and principal to the investors.

During 2017 and 2018, the European Union set up rules for securitisations. The goal was to bring the EU securitisation market back to life while also addressing worries about risky practices that had threatened stability after the global financial crisis of 2008. Since it entered into force in 2019-2020, the framework has strengthened investor protection, transparency, and financial stability.¹

The European Commission has recently taken steps to revitalize the EU’s securitisation framework to make it simpler, more effective, and supportive of economic growth. These initiatives are part of the savings and investments union strategy, which focuses on improving the way the EU financial system works to boost investment and economic growth across Europe.

Benefits of Securitisation

Enhanced Liquidity

By converting illiquid assets into tradable securities, institutions and originators can access capital markets and improve their liquidity position. This transformation allows entities to free up resources that can be used for further lending to EU citizens and enterprises.

Risk Management

Securitisation allows for the transfer of risk from the originator to investors, which can help in managing credit risk and regulatory capital requirements. The main goal is to enable banks and other financial institutions to use the loans and debts they grant or hold, pool them together, and turn them into different types of securities that investors can purchase.

Cost Efficiency

Securitisation can lead to lower funding costs compared to traditional financing methods, as it often allows for better pricing based on the risk profile of the underlying assets. Recent EU reforms aim to simplify unnecessarily burdensome requirements and reduce costs to encourage more securitisation activity.

Diversification of Funding Sources

By tapping into the capital markets, institutions can diversify their funding sources and reduce reliance on bank financing. This diversification is particularly important in today’s volatile economic environment.

Regulatory Benefits

In some jurisdictions, securitisation can provide regulatory capital relief, allowing institutions to optimize their balance sheets. The European Commission’s recent proposals have estimated a reduction in capital requirements by one-third for senior securitisation tranches, which should encourage new issuances in member states where activity has been limited.

Key Considerations before incorporating a Securitisation Vehicle

The European securitisation market operates under the EU Securitisation Regulation (EUSR), introduced in January 2019 as part of a comprehensive regulatory response to the Global Financial Crisis.

The Securitisation Regulation amendments aim to reduce operational burdens by simplifying transparency requirements, with plans to cut reporting fields by at least 35%. The revisions introduce more proportionate, principle-based due diligence processes, eliminating redundant verification steps when the selling party is EU-based and supervised.

Notably, the requirement for Simple, Transparent and Standardised (STS) securitisations has been modified to consider pools containing 70% SME loans as homogeneous, facilitating cross-border transactions and enhancing SME financing opportunities.²

Choosing the right jurisdiction

Selecting the appropriate jurisdiction for your securitisation vehicle is a critical strategic decision that impacts regulatory compliance, tax efficiency, and operational flexibility. Several European jurisdictions offer competitive frameworks for securitisation vehicles, each with distinct advantages depending on your specific transaction objectives.

The optimal jurisdiction ultimately depends on multiple factors: the location and type of underlying assets, your investor base, anticipated transaction complexity, and specific business objectives. Regulatory changes, such as the EU Securitisation Regulation, have created a more harmonized framework across Europe, though important jurisdictional nuances remain that can significantly impact transaction efficiency.

Structuring the vehicle

Decide on the structure of the securitisation vehicle. Common structures includes:

1. Securitisation Undertaking: A corporate entity specifically designed for securitisation transactions
2. Securitisation Fund: Similar to an investment fund, but specifically for securitisation assets
3. Fiduciary Structures: Where assets are held by a fiduciary for the benefit of investors

These structures are designed to isolate financial risk and facilitate the issuance of securities. You can choose a bankruptcy-remote structure with a Dutch Stichting or a Jersey Trust, which are most commonly used, or incorporate a vehicle using an entity in your group.

Legal & Tax Implications

You’ve made the strategic decision to incorporate a securitisation vehicle—now it’s time to navigate the complex legal and tax landscape that comes with it. Have you considered how different jurisdictional choices might impact your bottom line?

Legal and tax considerations aren’t just compliance checkboxes. They’re powerful levers that can dramatically enhance your securitisation structure’s efficiency. Engaging specialized advisors early in your planning process to avoid costly restructuring later.

By strategically selecting your jurisdiction and structure based on your specific assets and investor profile, you can create a tax-efficient vehicle that maximizes returns while maintaining full compliance.

Servicing and Management

Establish a reliable servicing and management framework for the transaction. Effective management and administration of the vehicle by an experienced partner is critical to ensure the correct execution of the transaction.

As the legislative changes removed restrictions on leverage and the nature of the securities permitted as collateral, the SV can now enter into a facility with a credit institution. This is required to acquire the full amount of the contemplated investments, providing greater certainty to the market.

Conclusion

Incorporating a securitisation vehicle represents a strategic opportunity for financial institutions and asset managers seeking to optimize their capital structures, enhance liquidity, and manage risk effectively. The European securitisation market, with its evolving regulatory framework, offers sophisticated mechanisms to achieve these objectives when properly structured.

Partnering with an experienced service provider gives you access to specialized knowledge from structuring and incorporation to efficient implementation and execution to vehicle liquidation.

This collaboration enables you to navigate jurisdictional complexities with confidence, ensure regulatory compliance across borders, and optimize your structure for maximum efficiency and investor appeal. Such expertise has become not merely beneficial but essential for institutions seeking to leverage the full potential of securitisation.

Securitisation is complex and you shouldn’t have to manage it alone. At Alter Domus, we simplify the process with end-to-end expertise, from transaction closing through administration and up to liquidation. With us as your partner, you can focus on strategy and investors while we take care of execution.

Contact us today to learn about how you can unlock of the full potential of securitisation with Alter Domus. 

Exchange-traded funds (ETFs) composed of collateralized loan obligations (CLOs) have grown significantly in recent years. The underlying CLOs consist primarily of senior secured broadly syndicated loans (BSLs). Although retail investors have had access to BSL funds for over 30 years through open-ended leverage loan mutual funds and for over a dozen years through ETFs, the first publicly traded CLO ETF was launched only in 2020. Prior to this development, CLO investments were predominantly made by institutional investors. This is particularly noteworthy given that historically anywhere from a half to up to two-thirds or more of the US BSL market are held by CLOs[1].

This paper examines the performance of a sample of publicly traded CLO ETFs based on historical returns. The sample encompasses various CLO ETFs that target a range of tranche seniorities, reflecting different levels of credit risk as indicated by their ratings. Additionally, the performance of BSL ETFs, from which we selected a sample, is considered to provide a reference point, given that a CLO tranche is fundamentally a derivative of its underlying BSL portfolio.

Our analysis of the historical daily returns and correlations of the ETFs indicates that over a longer period (such as two years), the risk/return characteristics amongst the ETFs are generally consistent with the underlying risk profile of the relevant ETF – i.e. similar performance levels for similar risks – and moderate correlations. However, an examination of daily CLO ETF returns and correlations over a short volatile period can exhibit a noticeable divergence in absolute and relative performance. These findings indicate that the ‘intuitive’ view that CLOs and BSLs are highly correlated may not be evident until there is significant market volatility. And even in that case, differences in performance indicate that other factors may be at play.

Our analysis found that CLO correlations may be further explained at times by vintage and underlying asset manager exposure rather than just broader BSL market dynamics. We offer additional insights and key factors that can impact the performance between CLO portfolios.

Historical Returns – Data

Our sample of CLO ETFs spans the range of tranche seniorities and the credit ratings scale – from CLO ETFs that focus primarily on senior tranches (rated primarily Aaa) to those that focus on investment grade mezzanine tranches (rated from Aa to Baa). And even to those that include some speculative grade tranches (Ba). Our study also considers BSL ETFs to acknowledge that CLOs are derivatives of the BSL market.

In this context, the relationship between CLOs and the underlying BSL market could provide additional insight into the performance of CLOs. We also included some other market related ETFs to gain additional insight as to the performance of the BSL and CLO markets relative to the broader capital markets. Thus, the selected ETFs can be grouped into three categories: BSL, CLO and other broader markets.

BSL Category

We selected four BSL ETFs that are managed by well-established asset managers and have benchmarks to broad BSL indices.

Table 1: List of BSL ETFs

CLO Category (BSL-Derived)

We selected a variety of CLO ETFs that invest in CLO tranches across the CLO capital structure, and with investments in CLOs across a range of vintage periods and asset managers.

Table 2: List of CLO ETFs

Understanding the underlying ratings distributions gives further insight into the level of exposures a CLO ETF has within a typical CLO capital structure. The CLO portfolios within our sample cover a range of credit risk exposures – from a fund with essentially 100% Aaa to other funds with a broader representation of investment-grade ratings as well as funds with concentrations of Baa/Ba credit risk[2].

Other Broader Markets Category

We also included ETFs that can provide additional perspective on the relative performance of the BSL and CLO markets to the broader capital markets.

In this context, we selected a small cap equity ETF (IWM) since many BSL borrowers would fall in the small cap category; a high yield bond ETF (HYG) since these issuers have a similar credit risk profile (though with different recovery rate and interest rate risks) as compared to BSLs; and a short-term Treasury fund ETF (VGSH) to provide some benchmark of shorter-term risk-free interest rates.

Looking at Financial Performance

We focused on the risk-return and correlation characteristics across the ETFs. We looked for insights into how the ETFs performance behaved with one another within the same category (‘intra-category’), and across categories (‘inter-category’) over different time periods. We observed that both intra-category and inter-category performance and correlation metrics depended heavily on which period we selected. We found that during the most recent market volatility (April 2025), patterns emerged that were not so evident during calmer periods.

In some cases, the correlations we observed between the BSL and CLO ETFs were not as consistent as expected. Understanding that CLOs are derivatives of the BSL market, we initially expected to see a relatively higher degree of correlation across all market environments, but the correlations across all market environments varied. This observation suggests that not all CLOs track the same broad ‘BSL market’.

We also found that CLO performance could be influenced by unique factors related to range of vintage periods of when the underlying CLOs were issued and the overall exposures to common CLO asset managers.

These findings show that these variations across CLO portfolios can offer an opportunity for CLO investors to diversify their BSL and BSL-derivative portfolios to better optimize their specific risk-return objectives. In other words, not all BSL and CLO ETFs are alike.

Historical Performance – ‘Normal Times’

We chose two distinct historical return periods to begin our comparative analysis. One that we could classify as a ‘normal’ period and the other as a ‘volatile’ one. We chose the month of April 2025 as the volatile period. This period reflected significant market volatility due to the rapidly changing global trade outlook and economic uncertainties associated with the related US tariff announcements.

We selected the two-year period from April 2023 through March 2025 as a proxy of ‘normal market conditions’ and can be considered somewhat as a benchmark. Exhibits 1 and 2 show the historical return statistics and correlations of daily returns for each of the ETFs, respectively. Note that two of the ETFs in our sample were not in existence for the full two year-period analyzed. Thus, summary stats are not available, and correlation stats apply only for the respective period that each of these two ETFs was in existence.  

We note that the return and risk characteristics across the ETFs are generally as expected within each investment category and subcategory. For example, among the BSL ETFs we note that there is no material distinction among the standard deviations and coefficients of variation. Among the CLO ETFs, the riskier CLO ETFs with lower rated tranches show higher volatility and coefficients of variation as compared to those CLO ETFs with higher rated tranches. The high yield bond ETF was the most volatile among the credit-sensitive ETFs. As expected, the small cap stock ETF was the most volatile while the short-term Treasury ETF was the least.

During ‘normal times’ NONE of the observed correlations were assessed to be Strong or Very Strong. All the correlations were assessed to be in the Moderate and Weak/Very Weak categories. Only 4 of the 22 observed correlations were assessed as Moderate while the remaining 18 were Weak / Very Weak. Three of the four that were Moderate, were related to the BSL category – BSLs to: BSLs, HY Bonds, and small cap stocks, respectively.

These observations suggest that during normal times, the correlations were not particularly significant for the CLO ETFs. Furthermore, CLO performance did not appear to be materially correlated to other credit risk assets, including the BSL market. Even within the CLO category, correlations were relatively marginal across the CLO capital structure, which suggests that movements in CLO tranche risk premiums seem to be more idiosyncratic during stable markets. These results are not surprising given that the CLO tranches are supported with credit enhancement – unlike CLO equity tranches, which we would expect to be more sensitive.

Exhibit 1: ETFs historical return statistics (April 2023 – March 2025)         

Exhibit 2: ETFs Historical Daily Return Correlation Matrix (April 2023 – March 2025) 

Exhibit 3: ETF Categories Historical Daily Return Correlation Matrix (April 2023 – March 2025)

Historical Performance – ‘Volatile Markets’

As previously explained, we defined the ‘volatile’ period to be the month of April 2025, a period of significant market volatility. Exhibits 4 through 6 show the various historical return statistics for the ETFs during this period.

One can immediately notice the significant jolt in the related risk statistics for all ETFs and the correlations among them. Below are some noteworthy observations based on the comparison of risk statistics between the two periods.

• CLO ETFs experienced the largest increase in risk measures, measured both by volatility (4x to 11x increase) and the range of daily returns (1.5x to 4x higher).
• BSL ETFs experienced roughly a 4x increase in volatility and about a doubling of the range of daily returns.
• Traditional ‘risk’ asset categories of high yield corporate bonds and small cap stocks did not show as much of a relative increase as the BSLs and CLOs – a relatively modest 2x increase in volatility and a 50% increase in range of daily returns. These asset classes, albeit riskier as they are typically subordinated relative to BSL, are more liquid and established markets. For the short-term Treasury ETF, the risk performance in April 2025 was relatively indistinguishable than during the ‘normal’ period.

With respect to correlations, our observations show a sharp increase. Whereas during ‘normal’ times, correlations are not meaningfully significant, this changed during ‘stressed’ markets –  half of the observed correlations are now assessed to be Strong and Very Strong (11 of the 22 observations) whereas 3 of the 22 are now Weak/Very Weak.

While correlations increased substantially, there were still some areas of divergence in performance that are worth noting. For example, the CLO ETFs such as the higher rated investment grade CLO ETFs show moderate correlations to all other asset classes. This implies that CLO ETFs may offer some diversification benefits (especially as you move up the capital structure associated with greater credit enhancement) even in stressed markets. However, the CLO ETFs with lower-rated tranches did show very strong correlations to the ’risk’ assets, but that is to be expected given their tranches’ higher degree of credit risk exposure associated with lower levels of credit enhancement.

Exhibit 4: ETFs historical return statistics (April 2025) 

Exhibit 5: Historical Daily Return Correlation Matrix (April 2025)

Exhibit 6: ETF Categories Historical Daily Return Correlation Matrix (April 2025)

Other Observations

A detailed attribution analysis of the underlying CLO ETF performances is outside the scope of this paper. However, we performed some high-level reviews of the CLO portfolios to look for potential factors that could affect the performance of the CLO ETFs and help explain some of the correlation behavior CLOs experienced, especially during the ‘volatile’ period as CLOs appeared to exhibit lower intra and inter correlations than the other asset classes.

Additional factors beyond market considerations appear to emerge when we look closer at the CLO portfolios. In addition to diverse capital structure exposures, we observed that the CLO ETFs had relatively diverse CLO vintage exposures. While exposures to common asset managers across the CLO ETFs could be significant, we noticed that the exposures were often across various CLO vintages of common managers.

Investing across CLOs with unique asset managers can provide diversification benefits despite targeting the BSL market. Different managers may have varying investment styles, strategies, size (or AUM), as well as industry/sector and credit expertise.

Notwithstanding the fact that a CLO portfolio may consist of several CLOs managed by the same entity, there can be advantages from diversifying across vintages. CLOs can be executed under different market conditions and potentially with variations in reinvestment criteria, even given identical CLO portfolio managers. Furthermore, CLOs from different vintages may be at various stages in their lifecycle, such as the reinvestment or amortization period, which also affects the level of a CLO’s reinvestment activity, as well as being past their non-call period, which can indicate the degree of potential refinancing activities.

Conclusion

ETFs composed of CLOs, with underlying BSLs, have experienced significant growth in recent years. While retail investors had access to funds of BSLs for over 30 years, the first publicly traded CLO ETF was introduced in 2020. This is noteworthy since a large part of the BSL market is held by CLOs and thus offers a broader group of investors to participate in the BSL-derived market across various risk/return profiles.

This paper analyzed the performance of CLO ETFs based on a sample of historical returns. The sample included different ETFs that target a range of CLO tranche seniorities, representing varying levels of credit risk. The performance of some BSL ETFs was also reviewed since the performance of a CLO tranche is essentially derived from its underlying BSL portfolio.

Our analysis of the historical daily returns and correlations of the ETFs show that over a longer ‘normal’ period, co-movements in performance are moderate and the risk/return characteristics across the ETFs are generally consistent with their underlying risk profile. However, CLO ETF returns and correlations can exhibit a noticeable divergence in performance and increase in volatility over a shorter period of extreme uncertainty. An example of which was during the recent period of market fluctuations caused by the US tariff announcements.

We also found that CLO correlations can be explained further by key factors such as the distribution of exposures to: (1) seniorities of the CLO tranches, (2) the vintage periods of when the CLOs were issued, and (3) asset manager overlap within a CLO ETF portfolio.

The bottom line is that CLO ETFs appear to offer investment diversification benefits and that not all CLO ETFs are the same, even given similar credit risk. While performance may appear to converge during stressful times, key differences in performance is also evident.

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[1] Guggenheim Investments research dated December 7, 2023 – ‘Understanding Collateralized Loan Obligations’ (https://www.guggenheiminvestments.com/perspectives/portfolio-strategy/understanding-collateralized-loan-obligations-clo) and FT Opinion On Wall Street dated June 7, 2025 – ‘The trend strengthening the hand of big credit houses’ (https://www.ft.com/content/b5693e95-3a89-4df0-a1f8-ad3e70338458).

[2] Although some of the CLO ETFs may report CLO tranches that are “not-rated”, this is not technically correct in all cases since some ETFs generally report ratings only from the two largest and widely recognized NRSROs. Nonetheless, “non-rated” tranches may still be less liquid and more volatile given the absence of a rating from one of the two largest NRSROs, but likely to offer higher yields.