Quick take: Private vs. Public Credit: Why AAA CLOs Now 

Hi, I am Derek Fin, Head of APAC private credit business strategy and development.

Private credit has been in the headlines more recently and often for the wrong reason, but the important part is that those headlines are not about all private credit. They focus on one specific segment, particularly BDCs (Business Development Companies).

BDCs are illiquid and below investment grade. That’s very different from the investment grade, more liquid part of the private credit market.

All the concerns around liquidity, valuations, and credit risk are less relevant to the liquid, investment grade part of the market.

These concerns do matter, but they are not universal across all the private credit.

In this video, we are going to focus on investment grade, AAA-rated CLOs, and why we think an allocation to both the US and Europe both look attractive.

Why AAA CLOs ?

Given all those concerns around BDCs, AAA CLOs don’t have those issues.

CLOs are actively traded in the secondary market, they are mark to market, and are investment grade. 

At the same time, AAA CLOs historically offered higher spreads¹ compared to other similarly rated investment grade fixed income.

¹Source: Invesco. Past performance does not predict future returns. All data as of March 31, 2026

From a portfolio construction stand point, AAA CLOs are floating rate, and have limited exposure to interest rate volatility. So they help diversify away from traditional fixed income risk.

That’s why many of our clients use the asset class as a cash plus type of allocation, or as a diversifier within their core fixed income allocation.

Why European AAA CLOs?

Similar to the US market, all the characteristics of European CLOs also apply to the European market. There’s an active secondary market, daily mark-to-market pricing, and AAA down to AA and single A European CLOs have historically have never experienced a default ².

²Source: Moody’s Ratings, Structured Finance: Impairment and loss rates of global CLOs: 1993-2024 as of June 2025. Past performance does not predict future returns.

So why blend European AAA CLOs with US exposure rather than picking just one? Europe adds diversification, there is different issuer, different sectors, and different underlying economies.

On top of that, European CLOs have historically offered even higher yields than US AAA CLO markets³. So you’re both adding diversification and picking up yield at the same time.

³Source: Bloomberg, JPM, Invesco, returns may increase or decrease as a result of currency fluctuations. Data as of 31 March 2026. Past performance does not predict future returns.

Why CLO managers matter?

In traditional asset classes, the gap between a good manager and an average one is often quite narrow. In private markets the gap can be much wider.

That’s matters in AAA CLOs our clients are more focus on high quality income and cash plus exposure. This asset class is ultimately about liquidity and downside protection.

So when you’re allocating to AAA CLOs or anywhere in private credit, choosing a manager with a strong track record , deep expertise in the asset class, and proven performance through cycles is essential.

For investors who want to earn income and stay defensive, we think AAA CLOs are one of the more interesting areas of the market today.