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- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
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- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
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NEWSLETTERS & ALERTS
‘Sliced and Diced’ CLOs Look Riskier
by Howard Haykin
You see, the safety element behind CLOs is that different businesses are extremely unlikely to all hit problems simultaneously. But with the coronavirus and its broad impact across a wide swath of businesses and industries, those presumptions don't necessarily apply. Industries like travel and leisure, commercial real estate, brick-and-mortar retailing, dining, sports and recreation, entertainment and education have all suffered, and each must now must recover while facing a sceptical public and incorporating new methodologies and added costs.
INVESTOR TAKE AWAYS. Given that 'only' $700 billion or so of CLO debt has been created in recent years, the overall impact on investors and the fixed income markets is large but not overwhelming. And it's certainly not as significant as 12 years ago when, during the credit crisis of 2008, the U.S. economy suffered enormous losses as the massive subprime-mortgage market collapsed. And, as we saw, the economy eventually recovered.
Yet, the troubles with CLOs serve as a reminder that there are “NO FREE LUNCHES” - that higher-yielding investments come with higher risks. Investors should, therefore, invest according to their risk tolerance levels. Which means ... if you can’t stand the heat from risky investments, then it's best to avoid complicated financial products and stick with simple bank accounts, index funds and money market funds.
For further details on Collateralized Loan Obligations, click on these publications:
Insurers Hit Brakes on Investments Designed to Make Risky Loans Safe [WSJ, subscr. reqd]
Financial Engineering Made Risky Loans Seem Safe. Now They Face a Huge Test [WSJ, subscr. reqd]
Understanding Collateralized Loan Obligations (CLOs) [Guggenheim]