The Tell: Big-name investors are back putting more ‘junk’ in their funds, despite the carnage in bonds

by | Jul 1, 2022 | Stock Market

Wall Street investors specialized in buying risky forms of corporate debt to slice-and-dice into securities have added an estimated $2 billion in high-yield, or “junk bonds,” to their funds already this year, according to an analysis by BofA Global. Funds managed by the Carlyle Group Inc.
KKR & Co. Inc.
and Ares Management Corp.
— some of the world’s biggest names in debt — were among a group of investors (see chart) that BofA Global pegged as adding “tens of millions of dollars” in junk bonds to their so-called “collateralized loan obligations” (CLOs), funds created mainly to invest in leveraged loans.

Big names in debt adding junk bonds to funds

BofA Global, Index

Like junk bonds, leveraged loans have emerged in recent decades as a key way for companies with an elevated risk of default to obtain financing from Wall Street, including to help fund their buyouts. Thus, the “junk” ratings. After the Global Financial Crisis, rules were passed to help limit what CLOs can hold in an attempt to avoid another CDO-style implosion at banks, but were loosened in 2020. Most now can keep up to 5% of their holdings in bonds. CLOs essentially work like this: T …

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