The fund s goal is to provide high returns with low volatility in a portfolio of managers that are largely not correlated with each other, or with any market index. Coast has successfully invested in this asset class since 1996, and is a leading independent investor in the equity of these structures. We primarily invest in CDOs whose underlying collateral is senior, secured bank loans. Loans are predominantly floating rate instruments that have little or no interest rate risk. As for credit risk, they typically hold the highest position in a borrower s capital structure.
Loans also have protective covenants that help ensure the investors' interest.
Leveraged bank loans are senior, secured credits that generally have a lower risk profile than high yield bonds. Additionally, Coast uses broad diversification among borrowers and industries to further mitigate risk. There is a relative value issue, too. The borrowers are usually below investment grade. This means that many institutional investors won t buy the paper as a matter of policy.