Kayne Anderson Capital Advisors has raised a $600 million collateralized loan obligation, or CLO, fund. 

It is the second such investment vehicle raised by the Century City-based firm and it's worth more than three times Kayne's original 2018 vehicle.

CLOs are pools of debt packaged together into single securities. They are commonly backed by lower grade corporate debt or debt taken out by private equity firms for leveraged buyouts. 

The Kayne fund will make both equity and debt CLO investments, according to the firm. CLO debt tranches are similar to bonds with credit ratings and interest payments. Equity tranches do not provide interest payments and are more risky, but can also have greater payoffs.

Fundraising for Kayne CLO Partners Fund II was technically cut off at its hard cap of $500 million. But, according to the firm, the fund received additional employee capital and funds from an unspecified separate account which netted it more than $600 million in investable capital.

“This is a significant milestone in establishing Kayne as a top-tier CLO manager and we are humbled by the strong level of support we have received from our limited partners,” John Eanes, Kayne’s head of liquid credit and managing partner of the CLO fund, said in a statement.

Added Kayne Managing Director Erik Quintana, “We believe (the new CLO fund) allows us to demonstrate our strong commitment to our CLO business now and in the future.”

Kayne is doubling down on its CLO investments amid an uncertain time for the space. Some industry watchers have been wary of the effects that downgrades of corporate loans could have on CLOs following the onset of Covid-19. For most CLOs, these downgrades have yet to materialize and the market has remained relatively stable.

Despite this, researchers at Massachusetts Institute of Technology and the University of Texas reported findings in an October study that suggested current ratings for CLOs might be overly optimistic. 

Although 25% of collateral feeding into CLOs was downgraded by S&P; and Moody’s between March and August, according to the researchers, the total value of CLO tranche downgrades was only 2%.

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