Review of Financial Studies 2026

Institutional Synergies and the Fragility of Loan Funds

Mustafa Emin¹; Christopher James²; Tao Li^3,4; Jing Lu⁵

¹ University of Alabama Culverhouse College of Business · ² University of Florida Warrington College of Business, · ³ University of Florida Warrington College of Business, , USA, and · ⁴ ECGI Warrington College of Business, , USA, and · ⁵ University of New South Wales

Abstract

There are two major institutional investors in the syndicated loan market: collateralized loan obligations (CLOs) and loan mutual funds. CLOs are closed-end funds while loan funds are open-end funds that issue claims that are redeemable on demand. In this paper, we examine whether CLOs provide arbitrage capital that contributes to the resilience of loan funds. We find that CLOs act as shock absorbers, providing liquidity through par-building trades when loan funds experience large outflows. However, CLO-provided liquidity is limited to par build–eligible loans, leading to potential flow-induced fire sales among par build–ineligible loans. (JEL G23, G38

DOI

10.1093/rfs/hhag056

Language

en

Sources

openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓