Huge Swathes of Retail, Institutional Markets Have Chased Yield Into Exotic Vehicles

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The one thing that has not changed since the crisis is the appeal these structures hold for investors. Credit-rating companies magically convert individual junk-rated loans into AAA-rated securities in their post-securitized newly bundled form. This parallel has left some industry watchers weary even as new CLO products open to small investors hit the market. Some managers have even contrived funds that allow mom-and-pop investors to gain exposure to private equity funds that have typically been open only to institutional and other qualified investors.

Retail investors are not alone. Public pensions have also been piling into illiquid credit funds to offset the income their portfolios cannot generate against a backdrop of near-record low yields in safer bonds. Canaccord Genuity's Brian Reynolds tallied $25 billion in fresh allocations on pensions' part in the past 12 weeks alone.

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Are pension fund managers and small investors to be drawn and quartered for taking on undue risks at this late stage in the credit cycle, even in the face of a record number of records? As has been the case for the better part of two decades, safer alternatives simply don't pay, so what's an investor to do?