CLOs (Collateralized Loan Obligations)

Collateralized Loan Obligations (CLOs) are financial vehicles that pool together various loans, typically corporate loans, and then sell slices of this pool to investors. Think of CLOs as a basket of loans, where different investors receive different levels of risk and return. The loans serve as collateral, meaning that if borrowers default, the CLO can use the loan assets to repay investors. CLOs help banks manage risk and provide investors with opportunities to earn returns, often with varying degrees of risk depending on the tranche, or segment, they invest in.