Charlotte Vincent from UK master trust the People’s Pension sits down with Aysha Gilmore to discuss the scheme’s first allocation to CLOs…
Despite their unfair reputation following 2008, collateralised loan obligations (CLOs) have performed exactly as designed, making them well suited for the default growth fund, says Charlotte Vincent, co-head of fixed income at the People’s Partnership.
In October 2025, the People’s Pension, the UK workplace defined contribution (DC) scheme provided by the People’s Partnership, made a £260m allocation to AAA-rated CLOs, a move that is an industry first for a DC provider in the country.
The allocation forms five per cent of the £39bn master trust’s default growth fund, with the DC scheme appointing investment firm Invesco to manage the assets. Overall, the commitment combines direct CLO exposure with Invesco’s CLO exchange-traded funds (ETFs).
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Sitting down with Alternative Credit Investor, Vincent says the UK DC scheme with seven million members invests in CLO AAA tranches due to the diversification benefits across managers, industries and vintages. “This is difficult to achieve through traditional corporate bond indices that tend to be heavily skewed toward financials,” she says.
CLOs, by their nature, can better withstand market stress, Vincent explains, but they are also attractive due to their income-generation capabilities.
“Having monitored CLOs for 20 years, I’ve seen firsthand that despite their unfair reputation following 2008, they performed exactly as designed during the financial crisis, with zero defaults on AAA and AA tranches,” Vincent says. “They [CLO AAA tranches] are publicly traded securities with daily pricing, transparency and liquidity.”
Vincent explains that the CLO allocation is the default growth fund’s first exposure to a floating-rate instrument.
“Their [CLOs’] floating rate nature also helps protect members against two key risks: rising interest rates and inflation,” says Vincent. “Unlike traditional fixed income holdings, CLOs adjust with market rates, helping to preserve real returns for members.”
Criticism
Overall, the global CLO market has nearly tripled in size over the past decade and now stands at about $1.4tn (£1.15tn).
However, criticism around investing in CLOs centres on complexity and a perceived lack of transparency, with credit quality often seen as difficult to assess. Vincent acknowledges these concerns but states that the pension fund only invests in strategies where it is confident in the underlying credit risk.
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“While some of these assets are less visible to the wider public, they are often highly data intensive for investors. CLOs are a good example; trustee reports routinely exceed 100 pages, providing granular detail on each underlying loan, collateral quality, coverage tests and structural protections.”
When asked whether the DC master trust will allocate further to CLOs in the future, Vincent says the People’s Pension is actively exploring opportunities, including further AAA tranches and, selectively, lower-rated tranches. However, she notes that no commitments have yet been made.
“AAA CLOs have demonstrated their value in our portfolio, and as our experience deepens, mezzanine tranches, and potentially CLO equity, are becoming more compelling from a credit perspective,” she says. “That said, moving down the capital structure requires materially greater diligence and focus.”
Illiquidity challenges
As pension funds move down the capital structure within CLOs, they face illiquidity challenges, as mezzanine and equity tranches are less liquid, with AAA CLOs among the most actively traded instruments in structured credit.
Liquidity is a key issue for DC pension funds investing in private markets, given the need to meet daily dealing requirements and member activity.
Vincent explains that the People’s Pension manages liquidity holistically at the total fund level and is deliberate about access points to certain markets, such as CLOs.
“We access the [CLO] market through a combination of direct holdings and ETF exposure, currently skewed towards ETFs, with a long-term target of roughly a 50/50 split that can adjust with market conditions. This mix gives us flexibility in how we build positions.
“We are selective about where each approach is used – ETFs are appropriate for AAA tranches given their depth and liquidity, but not for smaller, less liquid parts of the capital structure.”
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By focusing on the structure and size, Vincent believes that the DC provider can capture the benefits of private credit while managing liquidity and governance risks through the CLO allocation.
Private markets focus
The People’s Pension is one of the major UK retirement providers signed up to the Mansion House Accord, which involves investing 10 per cent of default funds into private markets by 2030.
The DC master trust has committed to allocating £4bn to private markets by 2030 but currently has no investments in the asset class, including private credit.
Vincent explains that the master trust is actively exploring opportunities within private credit, but as a master trust its approach must be “measured and research driven”, with decisions expected to be made over the next couple of years. This involves completing thorough due diligence and ensuring it meets the master trust’s long-term needs.
Vincent concludes that “more broadly, there is growing recognition that well designed access to private debt can improve DC member outcomes, but only if supported by strong governance and oversight”.
