Unlocking Yield in CLOs: Ellington’s Gregory Borenstein on Why Retail Investors Are Paying Attention   

As retail investors search for differentiated sources of yield beyond traditional fixed income, collateralized loan obligations (CLOs) have emerged as a compelling alternative. Once the preserve of institutional allocators, CLOs are increasingly accessible through vehicles like Ellington Credit Company (EARN), managed by Ellington Management Group. 

We sat down with Gregory Borenstein, portfolio manager for Ellington Credit Company and Managing Director and Head of Corporate Credit at Ellington Management Group, to discuss why CLOs are attracting attention from retail investors, what sets this asset class apart in today’s market environment, and how active management and institutional expertise can help investors capture yield while managing downside risks.  

CM: CLOs are often thought of as complex. What would you say to a retail investor who may be hesitant to approach this asset class because of its perceived complexity?   

GB: In the simplest terms, CLOs are securitizations backed by “leveraged loans,” which are senior secured loans made to large corporate borrowers. The leveraged loan market has a long and resilient track record. While CLOs are often perceived as complex, we view that complexity as an opportunity for skilled investors like Ellington Management Group, who can analyze the documents, structures, and underlying borrowers of CLOs to help capture excess returns for Ellington Credit Company investors. 

As retail investors continue to search for attractive dividends and total returns, we believe CLOs are a compelling investment opportunity. CLO tranches are well-structured, income-generating assets that we believe can offer high current yields, attractive total return potential, and resilient cash flows even during periods of market stress. Importantly, the CLOs in which EARN invests are actively managed by sophisticated managers, who have the flexibility to rotate assets and respond to changing market conditions, helping to drive strong long-term performance. 

CM: There’s been a noticeable rise in retail interest in alternative credit strategies. From your perspective, what’s driving this shift now, and how do CLOs fit into the story? 

GB: We’ve seen a rapid rise in participation in alternative credit strategies by retail investors, who are seeking yield and diversification beyond traditional fixed income. In many ways, we believe this reflects the evolution of private credit, where sophistication, access, and education are driving broader adoption.  

The CLO market specifically has grown incredibly fast, roughly doubling in size since 2018, and in turn becoming an increasingly liquid market. For retail investors, CLO-focused closed-end funds now give investors access to a market otherwise limited to institutional investors, while operating within the same protective regulatory framework as that of traditional mutual funds.  

CM: CLOs have historically shown resiliency during volatile periods. Can you share examples of how they’ve performed across past credit cycles, including recent periods of stress? 

GB: CLO tranches have historically demonstrated remarkable resilience during bouts of market volatility. For example, during prior periods of market dislocation, including the COVID crisis, most CLO structures continued to make payments on their debt tranches without interruption. We believe structural features such as credit enhancement, excess interest spread, and cash diversion triggers – coupled with collateral diversification and active management – can help preserve cash flows and protect debt tranches during times of stress.   

CM: What macro or market tailwinds are currently supporting CLO equity investing, and how long do you expect these conditions to last? 

GB: Today’s leveraged loan market remains healthy, supported by generally strong corporate fundamentals and resilient earnings. If interest rates move lower, many leveraged borrowers should benefit from reduced interest burdens, helping to mitigate default risk. At the same time, increased M&A activity and new loan issuance could create additional opportunities for CLO formation, supporting attractive asset yields and robust equity cash flows. Despite these tailwinds, we expect continued dispersion in CLO collateral performance, which should reward skilled investors capable of analyzing structures and identifying the right opportunities in this complex market. 

CM: CLOs can offer double-digit yields. How do they manage to generate that level of income compared to other fixed income or credit products? 

GB: CLO mezzanine debt and equity tranches have the potential to generate double-digit yields due to their structural leverage, which serves as highly efficient embedded financing. By pooling hundreds of senior secured corporate loans into a single vehicle, and incorporating credit enhancement, more than 85% of a typical CLO structure can achieve investment-grade ratings, significantly lowering its weighted average cost of capital. The resulting CLO mezzanine debt and equity tranches benefit from this built-in leverage while still being supported by other structural protections, such as overcollateralization.  

CM: One challenge for individual investors is access. How can retail investors participate in CLO strategies, and how does Ellington’s platform make this opportunity available? 

GB: CLOs have become more accessible over the past five years, partly due to the launch of several ETFs and closed-end funds, which have provided investors with exposure to different parts of the CLO capital structure. We offer retail investors access to the asset class through Ellington Credit Company (EARN), a publicly traded closed-end fund designed to provide individual investors with institutional-grade access to the CLO market.  

EARN is supported by the scale and expertise of Ellington, a $17+ billion asset manager. Ellington brings 30 years of experience across credit asset classes, as well as robust investment management resources, including analytics, research, data, and hedge fund investment expertise across stress testing, hedging, risk management, active portfolio management, and trading. With these capabilities, we can offer EARN investors the same institutional-grade benefits and opportunities that underpin Ellington’s broader investment platform. 

EARN provides a stable, permanent capital base that allows us to take a long-term, opportunistic approach to managing CLO exposures. This structure differs meaningfully from that of ETFs, which can face liquidity constraints and mass redemptions in stressed markets. To balance absolute return and risk-adjusted returns, our closed-end fund actively rotates between mezzanine and equity tranches across the U.S. and Europe, in both the primary and secondary markets, while strategically employing credit hedges to mitigate downside risk.  

CM: Active management seems particularly important in today’s environment. How does your team capture relative value across CLO tranches and issuers? 

GB: We believe Ellington’s deep experience in trading, proprietary modeling, and structured credit analysis enables us to identify relative value opportunities across CLO tranches, issuers, and geographies. Our process focuses on quantifying risks across a range of scenarios and targeting opportunities where we believe we can achieve the most attractive risk-adjusted returns.  

Because EARN is an actively managed vehicle, our team can take advantage of market dispersion, trading inefficiencies, and liquidity dynamics. We view the market’s inherent complexity as a source of opportunity, where disciplined analysis and thoughtful portfolio construction can drive sustainable excess returns for our investors. 

CM: Finally, what’s the one takeaway you’d like investors to remember about CLOs as they consider broadening their exposure to alternative credit strategies?  

GB: CLOs have evolved into a mature, institutional-quality market offering distinct income, diversification, and total return benefits. While CLOs can experience short-term price volatility, they remain actively traded instruments that can be repriced and monetized over time, unlike other private credit markets that lack comparable liquidity and pricing transparency.  

All in all, for retail investors seeking to broaden exposure to alternative credit, CLO-focused closed-end funds provide access to a high-yielding, structurally protected strategy that has demonstrated resilience across market cycles.  

The information contained in this publication (including the accompanying Q&A and commentary) is provided for informational purposes only and does not constitute or form part of any offer to sell, or a solicitation of an offer to buy, any securities. Nothing herein should be construed as investment advice or as a recommendation regarding any security or investment strategy. The content should not be relied upon as the basis for any investment decision or other commitment.