(Bloomberg) -- Investors are set to have their first shot at buying European collateralized loan obligations through an exchange-traded fund, following the growth of the asset class into a multi-billion dollar market in the US.
Fair Oaks Capital has received approval from the Luxembourg regulator Commission de Surveillance du Secteur Financier to launch the industry’s first European-domiciled, euro-denominated CLO ETF, according to a memo seen by Bloomberg. The credit manager plans to launch the ETF on Deutsche Boerse Xetra on September 10. It will be listed on the London Stock Exchange shortly after.
CLOs typically package bundles of leveraged loans into bonds of varying risk and reward, but Fair Oaks’ fund will invest in only the AAA-rated, or safest, tranche. Triple-A rated bonds have first priority in cash flows from the CLO.
In the US, money is pouring in. Janus Henderson recently reached $10 billion in assets with its flagship vehicle. In a sign that more ETFs tracking European CLOs are expected to follow, the investment manager also acquired European ETF provider Tabula in July.
A strong performance relative to other asset classes has meant that issuance of CLOs has skyrocketed this year. As their underlying assets are leveraged loans that pay floating rates, they generate more income as yields rise. That’s been an draw for investors as interest rates stay higher for longer.
Market players have been hoping that making the asset class accessible to smaller institutions will bolster it even further.
The Fair Oaks AAA CLO ETF (FAAA) will be registered for distribution to investors across Europe, including Germany, Italy and the UK. The fund will be managed by a team led by Miguel Ramos Fuentenebro and Roger Coyle, co-founders and partners of the firm.
London-based Fair Oaks Capital manages $3 billion in assets in CLOs and corporate credit strategies.
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