Understanding CLO mechanics reveals an asset class offering compelling risk-adjusted return potential and natural rate hedging. Key takeaways An increasingly mainstream asset class: at $1.5 trillion , CLOs are now comparable in scale to US high yield bonds and come with structural advantages. Senior-secured collateral, layered credit protections and active portfolio management have historically delivered lower volatility than similarly rated corporate debt across market cycles. A natural hedge in volatile rate environments: CLO coupons reset with short-term rates, providing built-in protection when rates rise. And unlike static securitized products, CLOs are actively managed, enabling continuous portfolio optimisation. A capital stack with solutions to suit a range of investor needs: CLOs offer a differentiated risk and return profile at every level of the capital stack. These range from AAA senior tranches offering the potential for capital preservation and stable income, to mezzanine tranches providing incremental yield potential and an equity tranche with leveraged exposure to diversified corporate credit.