Collateralised loan obligations (CLOs) are surging in popularity and are proving they are able to withstand market shocks – but the sector now needs to invest in greater transparency and oversight to ensure its continued growth remains sustainable, an expert has warned.
Joanne McEnteggart, global head of debt, capital markets and corporate at IQ-EQ, told Alternative Credit Investor that the CLO market – once “tarred by association with the 2008 financial crisis” – has proven far more resilient than most expected.
“Investor appetite is surging, with total global market value reaching $1.4tn (£1tn) in April 2025, according to Bank of America data. The market has nearly doubled in size since 2018, making CLOs one of the fastest-growing areas of structured finance,” she said.
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“This asset class has shown that it can withstand market shocks and deliver consistent returns, due to the diversified nature of CLO portfolios and the constant assessment of how assets within the portfolio are performing within the criteria and investment guidelines set by the structure.”
She said that private debt managers are switching to CLO products as they are more liquid, but are doing so in conjunction with significant cornerstone investors who want exposure to the asset class.
“With little M&A happening in the market, the only option is to refinance, resulting in a lot of paper coming to the market across diverse sectors. CLOs offer many differing levels of tranche access depending on the investor’s risk profile and returns appetite,” she said.
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However, she added that while the rapid rise of CLO ETFs is democratising participation in the asset class, it is also prompting questions about how well retail investors truly understand the risks they are taking on.
“With this flood of capital chasing yield, and a wall of refinancing looming, regulators are warning of familiar risks: underwriting discipline under pressure, increasing market concentration, and a troubling opacity in systemic oversight,” she said.
“The majority of CLO structures are in unregulated special purpose vehicles, which are not exposed to the same regulatory scrutiny as an investment fund but still must comply with securitisation rules pertaining to risk retention.
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“The jury’s still out on whether the current boom reflects a market that has genuinely matured or is simply setting the stage for its next major stress test. CLOs are not exempt from the risks that market volatility can bring, especially in the current context of geopolitical pressures and fiscal change, the likes of which have not been witnessed before.
“What’s clear is that strong administration, rigorous reporting, and smarter use of data will be vital to protect investor confidence and ensure growth remains sustainable. In a sector now too significant to overlook, the difference between resilience and fragility will come down to transparency and oversight,” she concluded.
