Rated Feeders
Just read the Bloomberg article about insurers and how they are using a new product called “rated feeders”. When you google it barely anything comes up and it sounds like very niche. I was wondering if they are basically private debt CLO’s, again idk just trying to figure it out and get a better grasp
Based on the most helpful WSO content, here's what you need to know about CLOs and their relation to private debt:
CLO Analysts vs. Public Credit HF:
CLOs and Loan Management:
CLOs in the Market:
CLOs and Market Conditions:
Private Credit and Direct Lending:
Credit Quality Spectrum:
If you need more specific information about "rated feeders," it might be beneficial to look into specialized financial publications or industry reports that cover niche financial products.
Sources: Private Credit -> Public Credit Exits?, What are the different types of Credit?, Q&A: Currently at a Credit Hedge Fund, https://www.wallstreetoasis.com/forum/credit/private-credit-will-it-hold-up?customgpt=1, Debt Funds & CLOs
You create an SPV that become an LP in a private credit fund. Instead of fully committing as an LP (wherein the entire LP commitment is treated as equity and hit with a 45% cap charge for insurance companies), you create an SPV which issues debt + equity which you as the insurer purchase, bringing down the blended cap charge and this SPV then invests as an LP in the private credit fund.
It's just a BS capital charge arb strategy. From the insurers perspective there's little to no difference in investing in a private credit fund directly vs thru a RF structure, you just get yourself to a lower capital charge via RF. That's why NAIC is going after them because it's a glorified loophole.
It's like me being a fixed income investor that needs to hold 95%+ of AUM in fixed income, 5% max allocation to equity, so I just create an SPV to buy $100M of Nvidia stock that issues $99M debt, $1M equity and I buy all of it. Sure, technically I fall within my concentration limits but obviously I'm effectively just taking full equity risk and this is nothing more than a loophole
Financial engineering is where it’s at bro when OAS is at historic tights. Ain’t no BS to see here
CFOs have been around in various forms since late 90s/00s. Originally it was fund of hedge fund financing.
https://www.tavakolistructuredfinance.com/collateralized-fund-obligatio… for a trip down memory lane
To be honest, it felt less like financial engineering and more so just straight up ratings arbritage. And these arb opportunities have a way of closing real quick (@NAIC)
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