4 ms·

These things are not sold to retail investors. If you're an institutional investor and don't know what you're investing in, that's on you.

by whatok 8y ago

mattmanser 8y ago
No it's not, it's on the taxpayers because they get bailed out.
short_sells_poo 8y ago
The darker side of the problem is that staff and decision makers at institutions have no skin in the game so to speak. They are not the owners, and are highly unlikely to see the long term downside of their decisions. They hope that by the time the music stops playing, they won't be around to have to deal with the consequences. Some token measures like deferred bonuses or long vesting stock options have been done, but ultimately this just pushed out the horizon a bit. So you have to take care no to be part of a cockup in 5 years instead of 1 year.
- whatok 8y ago
  I don't disagree that incentive structures drive poor long-term decisions but that's separate from "omg complex 100000 page prospectus". Misaligned perspectives exist whether there's a prospectus or not.
  - short_sells_poo 8y ago
    You are right of course, I was just trying to provide an explanation as to why institutional clients aren't more diligent. They are often not particularly skilled either, as those who can see through the game are on the other side of the trade. Working at a pension fund is not a sexy or exciting proposition by any measure, so talent tends to go elsewhere. It's the same situation as bright researchers going to finance where they get paid multiples of what they'd earn in their own field. Once you sign your soul to the devil, it is very difficult to get out. I'm speaking from experience.
pmart123 8y ago
They are being sold to retail through close ended funds. Https://www.reuters.com/article/us-intervalfunds-loans/new-interval-funds-offer-alternative-investments-to-retail-investors-idUSKBN1IC290 https://www.bloomberg.com/opinion/articles/2018-07-10/clos-have-hit-a-peak-when-mom-and-pop-show-up https://www.bloomberg.com/opinion/articles/2018-07-10/clos-h...
- whatok 8y ago
  The AUM of CLO CEFs are minuscule vs overall CLO market. The two highlighted in that article's graph have a combined AUM of less than $600mm while the overall CLO market has more than $600bn outstanding. CLOs are not being sold directly to retail and it's very misleading to bring up CEFs without mentioning the size of these funds.
  - pmart123 8y ago
    It's true the total CEF AUM is small, I don't think it is misleading because they still are being sold to retail at the end of the day even if the AUM is less than $1B. MLP's also started small too. The overall leveraged loan market for retail investors is much larger though as far as I am aware. https://ftalphaville.ft.com/2018/11/20/1542706123000/Who-s-buying-leveraged-loans-anyways-/ https://ftalphaville.ft.com/2018/11/20/1542706123000/Who-s-b...

These things are not sold to retail investors. If you're an institutional investor and don't know what you're investing in, that's on you.

by whatok 8y ago

These things are not sold to retail investors. If you're an institutional investor and don't know what you're investing in, that's on you.

mattmanser 8y ago

No it's not, it's on the taxpayers because they get bailed out.

short_sells_poo 8y ago

The darker side of the problem is that staff and decision makers at institutions have no skin in the game so to speak. They are not the owners, and are highly unlikely to see the long term downside of their decisions. They hope that by the time the music stops playing, they won't be around to have to deal with the consequences. Some token measures like deferred bonuses or long vesting stock options have been done, but ultimately this just pushed out the horizon a bit. So you have to take care no to be part of a cockup in 5 years instead of 1 year.

whatok 8y ago
I don't disagree that incentive structures drive poor long-term decisions but that's separate from "omg complex 100000 page prospectus". Misaligned perspectives exist whether there's a prospectus or not.
- short_sells_poo 8y ago
  You are right of course, I was just trying to provide an explanation as to why institutional clients aren't more diligent. They are often not particularly skilled either, as those who can see through the game are on the other side of the trade. Working at a pension fund is not a sexy or exciting proposition by any measure, so talent tends to go elsewhere. It's the same situation as bright researchers going to finance where they get paid multiples of what they'd earn in their own field. Once you sign your soul to the devil, it is very difficult to get out. I'm speaking from experience.

pmart123 8y ago

They are being sold to retail through close ended funds. Https://www.reuters.com/article/us-intervalfunds-loans/new-interval-funds-offer-alternative-investments-to-retail-investors-idUSKBN1IC290 https://www.bloomberg.com/opinion/articles/2018-07-10/clos-have-hit-a-peak-when-mom-and-pop-show-up https://www.bloomberg.com/opinion/articles/2018-07-10/clos-h...

whatok 8y ago
The AUM of CLO CEFs are minuscule vs overall CLO market. The two highlighted in that article's graph have a combined AUM of less than $600mm while the overall CLO market has more than $600bn outstanding. CLOs are not being sold directly to retail and it's very misleading to bring up CEFs without mentioning the size of these funds.
- pmart123 8y ago
  It's true the total CEF AUM is small, I don't think it is misleading because they still are being sold to retail at the end of the day even if the AUM is less than $1B. MLP's also started small too. The overall leveraged loan market for retail investors is much larger though as far as I am aware. https://ftalphaville.ft.com/2018/11/20/1542706123000/Who-s-buying-leveraged-loans-anyways-/ https://ftalphaville.ft.com/2018/11/20/1542706123000/Who-s-b...