Interest in Collateralised Loan Obligations (CLOs) is picking up across the UAE and wider GCC as investors reassess how they generate income and manage risk in uncertain environments, prompting a rethink on fixed income portfolios.
For many years, CLOs sat on the periphery of regional portfolios, often viewed as a specialist allocation better suited to more developed markets. That is beginning to change.
Conversations with investors in the Gulf suggest a growing awareness of the role securitised credit can play within a broader fixed income allocation, particularly where there is a need to balance yield with resilience.
Why the Current Cycle is Driving Demand
Part of this shift is cyclical.
The current rate environment has prompted a more careful look at duration risk and the potential impact of further volatility. Floating-rate instruments have come back into focus. High-quality CLO tranches, which typically sit at the top of the capital structure, offer income that adjusts with interest rates, alongside structural protections that can help cushion against credit deterioration.
At the same time, the way securitised markets have behaved through recent volatility has not gone unnoticed. While broader risk assets have experienced sharper swings, securitised credit has tended to fare better, supported by strong fundamentals, limited exposure to interest rate risk, and particularly robust technicals, with the latter evidenced by the lack of outflows and the continued investor appetite for new primary deals coming to market.
These three features of the asset class can help dampen volatility in periods of stress.
GCC Investors Increase Engagement
From a regional perspective, what stands out is the level of engagement.
Over the past year, there has been a clear increase in questions from UAE-based investors around securitised credit, and CLOs in particular. Much of the interest is centred on the AAA segment, where investors are seeking a combination of income, liquidity and capital preservation.
This is not entirely new. Market participants speaking at Abu Dhabi Finance Week last year indicated that a number of GCC institutions are already allocating to AAA tranches of US and European CLOs.
What appears to be changing now is the breadth of that interest, extending beyond a relatively small group of early adopters to a wider set of institutional and private wealth investors.
Liquidity Lessons from Private Credit
There is also a structural dimension to this trend.
As investors in the region continue to build out their exposure to alternative assets, questions around liquidity and valuation have become more prominent. Recent developments in parts of the private credit market have highlighted the importance of understanding how and when assets are priced, and how investors access liquidity in more challenging conditions.
In this respect, it is important to distinguish between private credit and the broadly syndicated loans that underpin CLOs. While both sit within the leveraged finance universe, they differ in fundamental ways. Broadly syndicated loans benefit from continuous market pricing and a wide institutional investor base, while some private credit strategies rely on periodic valuations and more limited liquidity mechanisms.
CLOs, built on these syndicated loans and funded through term structures, offer investors access to a diversified pool of credit with liquidity provided through the secondary market, rather than through the sale of underlying assets.
Diversification and Defensive Features
For many GCC investors, that distinction is increasingly relevant. As allocations to alternative credit grow, there is a greater focus on liquidity and on how different instruments behave under stress, particularly in more volatile market conditions.
Another factor supporting interest in CLOs is the depth of diversification within the asset class itself. A typical CLO portfolio may contain exposure to a large number of underlying loans, with limits on any single borrower. This helps to mitigate the impact of individual credit events, particularly in higher-rated tranches where subordination and other structural features provide additional layers of protection.
A significant portion of a typical securitised deal is rated AAA, offering high-quality, short-dated exposure within the capital structure.
Selectivity and Active Management Matter
None of this removes the need for careful analysis.
CLOs remain a specialist area of the market, and outcomes can vary depending on the quality of the underlying loans, the approach of the manager and the specifics of the structure. This is where selectivity becomes important. Selectivity also extends to manager experience and platform strength to manage assets including the $68B of securitised assets globally, $34B of CLOs (31 March 2026), at Janus Henderson.
The broader point is that investor behaviour in the GCC is evolving. There is a greater willingness to look beyond traditional fixed income categories and to consider how different segments of the credit market can complement one another. In that context, CLOs are moving beyond their niche status and are increasingly being considered alongside more traditional fixed income exposures.
This is less a sudden shift and more a reflection of how investor thinking in the region is evolving. As portfolios become more sophisticated, there is a greater willingness to look at areas of the credit market that were previously less well understood.
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