Continued from here.
The ultra-quick recap: Leveraged loans avoid most interest-rate price risk & enjoy better (default) recoveries than junk bonds, while CLOs offer diversification & loss mitigation, plus varying levels of tranche risk. These defensive attributes, coupled with current CLO yield spreads, may offer the best credit opportunity for 2013.
I like that risk/reward profile, but honestly, current yields & potential returns from leveraged loans/most CLO tranches don’t offer the level of return I’m seeking. Yes, you know where this is going… I want to take those defensive attributes & re-invest them into a more aggressive investment – residual equity tranches!
Time now for a proper introduction: Tetragon Financial Group (TFG:NA)
Tetragon IPO’d at $10 in 2007, as an Amsterdam listed closed-end investment company, primarily investing in US CLO residual equity tranches. Some funds & business development companies (BDCs) have recently added CLO equity exposure, but TFG’s one of the few pure plays out there. It’s managed by Tetragon Financial Management (TFM), which is controlled by the founders of Polygon Global Partners. Um, let’s just dive straight into the bad stuff…