KEY POINTS

• Structured credit pools similar loans or debt obligations and issues corresponding securities backed by their cash flows.
• Post-crisis reforms have reshaped structured credit into a more disciplined and lower-risk market. Today structured credit generally features stronger credit support, more standardized documentation and enhanced transparency through asset-level reporting.
• Issuance volumes have also recovered in a more measured way, supported by institutional investors with longer investment horizons, rather than highly leveraged, short-term capital.
• Because structured credit’s primary buyers are institutions capable of navigating complexity, the asset class can feel opaque to individual investors.
• Structured credit can offer a range of benefits. By securitizing pools of loans, lenders can free up capital to make new loans, while investors gain exposure to cash-flowing assets across diverse sectors that may offer higher yield potential than traditional fixed income.

What Is Structured Credit?

Structured credit involves pooling similar loans or debt obligations and issuing securities backed by the cash flows from those assets (see below). Unlike traditional bonds, where investors lend to a single issuer, structured credit securities are backed by diversified pools of loans, spreading risk across many borrowers rather than relying on a single corporate balance sheet.

Structured credit includes several major types of securities. Each is backed by a different kind of underlying
asset and is driven by distinct economic factors, which can enhance diversification within a portfolio.⁷
The four main types of traded segments of structured credit are:

• Asset-backed securities (ABS)—backed by pools of consumer and commercial loans, such as auto loans, credit cards, equipment leases and other receivables.
• Commercial mortgage-backed securities (CMBS)—backed by income-producing commercial real estate loans.
• Residential mortgage-backed securities (RMBS)—backed by income-producing pools of residential mortgage loans.
• Collateralized loan obligations (CLOs)—backed by pools of senior secured corporate loans.

In addition to these traded markets, asset-based finance (ABF) represents the private side of structured credit, where similar asset-backed lending structures are originated and held outside the public securitization markets.

Many investors associate structured credit, particularly RMBS securities, with the global financial crisis (GFC).
While inadequate risk controls by some investors and issuers of certain mortgage-related securities contributed meaningfully to the crisis, CLOs backed by pools of senior secured corporate loans generally performed far better, with relatively low default rates even during periods of severe market stress (see below).

Since the crisis, the CLO market has evolved significantly, with regulatory reforms emphasizing the need for greater transparency, enhanced disclosure and improved alignment of incentives. Some of the most notable reforms include the implementation of manager co-investment and, in some jurisdictions and transaction types, “risk retention” requirements, which can require managers or sponsors to retain an ongoing economic interest in the transactions they manage and to bear meaningful risk alongside investors. Modern CLOs are a more mature, transparent and investor-focused segment of the structured credit market.

Key Differences From Traditional Fixed Income

Structured credit sits within the universe of fixed income but behaves differently from traditional fixed income in many ways due to its structural protections, floating-rate nature (which offers protection against interest-rate changes) and reliance on contractual cash flows rather than issuer credit alone. Some of these key differences include the following:

Creditworthiness. Traditional bonds depend on the creditworthiness of a single issuer and typically pay a fixed coupon. Structured credit, by contrast, is backed by hundreds or thousands of underlying loans and often pays floating-rate income, which can reduce interest-rate sensitivity.

Risk mitigation. Structured credit risks are managed through built-in structural features: Lower-ranking investors in the capital structure will absorb losses first through subordination, while excess interest income (excess spread) can provide an additional buffer for senior investors—protections that are not typically available in traditional bonds.⁸

Tranching. Unlike traditional fixed-income instruments, structured credit investments are divided into tranches, each with a different risk and return profile. Senior tranches generally offer lower yields but more risk protection, while mezzanine and junior tranches offer higher potential returns in exchange for taking on greater risk. This allows managers to choose the level of risk that best aligns with their investment goals rather than accepting a one-size-fits-all exposure (see below).

Post-crisis improvements in structuring have been supported by significantly enhanced data transparency at the underlying loan level, enabling more rigorous credit analysis, monitoring and stress testing—particularly within ABS.

The Benefits of Structured Credit

Structured credit can complement traditional fixed income by boosting income potential, portfolio diversification and exposure to different economic drivers.⁹ It is often used alongside corporate bonds and loans to improve portfolio efficiency rather than replace core holdings.

Structured credit has historically offered attractive income due to a “complexity premium,” meaning managers who invest in the asset class are compensated for analyzing and monitoring more complex structures (see below). However, because payment streams come from diversified pools of loans, structured credit can also reduce reliance on any single borrower or issuer.

Many structured credit securities are floating-rate, which can make them less sensitive than fixed-rate bonds to rising interest rates. In a declining rate environment, returns may moderate; however, many structures incorporate interest-rate floors, which can help support income levels.

Risks to Consider

While structured credit sometimes carries a legacy stigma from the financial crisis, today’s structures, particularly CLOs, operate under a very different regulatory and market framework. Still, structured credit contains risks that investors should understand.

First, structured credit is more complex than traditional bonds and requires careful analysis of both the structure and the underlying collateral. Effective risk assessment often depends heavily on the quality and depth of available data as well as having the time and resources to devote to underwriting and reviewing individual loans. Second, credit risk, liquidity risk and prepayment or extension risk can all affect performance. While structural protections can help mitigate losses, they do not eliminate risk entirely. The capabilities of skilled, experienced managers with robust data analytics and underwriting processes are particularly important to favorable outcomes.

The Bottom Line

Structured credit is not a single asset class—it encompasses a broad universe of securities backed by diverse, cash-flowing assets. That diversity underscores its ability to boost diversification, enhance income and complement traditional fixed-income exposures.¹⁰ When thoughtfully implemented, we believe structured credit can be an accretive component of a diversified, income-oriented portfolio. 

While structured credit can be a complex asset class, successful outcomes across market conditions can be achieved by partnering with skilled managers experienced in underwriting, structuring and monitoring collateral and deal structures across multiple economic cycles.

Read more in our Alts Quarterly Q1 2026.

ENDNOTES 

⁷ Diversification does not ensure a profit or protect against loss.

⁸ Structured credit risk-mitigation features may not insulate investors entirely from exposure to the underlying loan performance in the portfolio.

⁹ Diversification does not ensure a profit or protect against loss.

¹⁰ Diversification does not ensure a profit or protect against loss.

A WORD ABOUT RISK

As an asset class, private credit comprises a large variety of different debt instruments. While each has its own risk and return profile, private credit assets generally have increased risk of default, due o their typical opportunistic focus on companies with limited funding options, in comparison with their public equivalents. Because private credit usually involves lending to below-investment-grade credit assets is increased in return for taking on increased risk.

Investments in real estate-related instruments may be affected by economic, legal or environmental factors that affect property values, rents or occupancies of real estate.

Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdown, surplus capacity, increased competition, lack of fuel availability and energy conservation policies.

Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. High-yield bonds are subject to interest-rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.

The information in this publication is not and is not intended as investment advice, an indication of trading intent or holdings, or a prediction of investment performance.

Diversification does not guarantee a profit or protect against loss. The views and information expressed herein are subject to change at any time. Brookfield disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources; however, Brookfield does not warrant its completeness or accuracy.

The opinions expressed herein are the current opinions of Brookfield, including its subsidiaries and affiliates, and are subject to change without notice. Brookfield, including its subsidiaries and affiliates, assumes no responsibility to update such information or to notify clients of any changes. Any outlooks, forecasts or portfolio weightings presented herein are as of the date appearing on this material only and are also subject to change without notice.

Past performance is not indicative of future performance, and the value of investments and the income derived from those investments can fluctuate.

FORWARD-LOOKING STATEMENTS

The information herein contains, includes or is based on forward-looking statements within the meaning of the federal securities laws, specifically Section 21E of the Securities Exchange Act of 1934, as amended, and Canadian securities laws. Forward-looking statements include all statements, other than statements of historical fact, that address future activities, events or developments, including, without limitation, business or investment strategy or measures to implement strategy, competitive strengths, goals, expansion and growth of our business, plans, prospects and references to our future success. You can identify these statements by the fact that they do not relate strictly to historical or current facts.

Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other similar words are intended to identify these forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining our actual future results or outcomes. Consequently, no forward-looking statement can be guaranteed.

Our actual results or outcomes may vary materially. Given these uncertainties, you should not place undue reliance on these forward-looking statements. They are not intended to provide an overview of the terms applicable to any products sponsored by Brookfield Corporation and its affiliates (together, “Brookfield”). Information and views are subject to change without notice. Some of the information provided herein has been prepared based on Brookfield’s internal research, and certain information is based on various assumptions made by Brookfield, any of which may prove to be incorrect. Brookfield may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information included herein, including information that has been provided by third parties, and you cannot rely on Brookfield as having verified any of the information. The information provided herein reflects Brookfield’s perspectives and beliefs as of the date of this commentary.

INDEX PROVIDER DISCLAIMER

The quoted indexes within this publication are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and also regulatory and legal restrictions between the indexes shown and any investment in a Brookfield strategy, composite or fund. Brookfield obtained all index data from third-party index sponsors and believes the data to be accurate; however, Brookfield makes no representation regarding its accuracy.

Brookfield does not own or participate in the construction or day-to-day management of the indexes referenced in this document. The index information provided is for your information only and does not imply or predict that a Brookfield product will achieve similar results. This information is subject to change without notice. The indexes referenced in this document do not reflect any fees, expenses, sales charges or taxes. It is not possible to invest directly in an index. The index sponsors permit use of their indexes and related data on an “as is” basis, make no warranties regarding the same, do not guarantee the suitability, quality, accuracy, timeliness and/or completeness of their index or any data included in, related to or derived therefrom, and assume no liability in connection with the use of the foregoing.

The index sponsors have no liability for any direct, indirect, special, incidental, punitive, consequential or other damages (including loss of profits). The index sponsors do not sponsor, endorse or recommend Brookfield or any of its products or services. Unless otherwise noted, all indexes are total-return indexes.

KEY TERMS AND INDEX DEFINITIONS

Bloomberg Global Aggregate Index is a market-capitalization-weighted index comprising globally traded investment-grade bonds. The index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year.

Bloomberg U.S. Corporate High Yield Bond Index measures the USD-denominated, high-yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below.

Cliffwater Direct Lending Index (CDLI) seeks to measure the unlevered, gross-of-fee performance of U.S. middle-market corporate loans, as represented by the asset-weighted performance of the underlying assets of business development companies (BDCs), including both exchange-traded and unlisted BDCs, subject to certain eligibility requirements.

FTSE EPRA Nareit Developed Real Estate Index is an unmanaged market-capitalization- weighted total-return index that consists of publicly traded equity REITs and listed property companies from developed markets.

FTSE Global Core Infrastructure 50/50 Index gives participants an industry-defined interpretation of infrastructure and adjusts the exposure to certain infrastructure subsectors.The constituent weights are adjusted as part of the semi-annual review according to three broad industry sectors: 50% Utilities; 30% Transportation, including capping of 7.5% for railroads/railways; and a 20% mix of other sectors including pipelines, satellites and telecommunication towers. Company weights within each group are adjusted in proportion to their investable market capitalization.

Green Street Commercial Property Price Index (CPPI) is a time series index published by Green Street, which tracks the value of U.S. commercial real estate properties. The index is based on transaction prices and appraisals of institutional-quality properties across major sectors, including office, industrial, retail and multifamily. It is widely used as a benchmark for changes in commercial property values over time.

ICE BofA Single-B U.S. High Yield Index tracks the performance of USD-denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market, including all securities with a given investment-grade rating of B.

ICE BofA U.S. Convertibles Index tracks the performance of convertible bonds in the U.S.

ICE BofA U.S. High Yield Constrained Index measures the performance of USD-denominated, non-investment-grade, fixed-rate, taxable corporate bonds.

J.P. Morgan CLO A Index is a subset of the J.P. Morgan CLO index that only tracks the A-rated CLOs.

J.P. Morgan CLO BB Index is a subset of the J.P. Morgan CLO index that only tracks the BB-rated CLOs.

J.P. Morgan CLO BBB Index is a subset of the J.P. Morgan CLO index that only tracks the BBB-rated CLOs.

MSCI ACWI ex USA captures large- and mid-cap representation across developed markets (DM) countries (excluding the U.S.) and emerging markets (EM) countries. The index covers approximately 85% of the global equity opportunity outside the U.S.

MSCI Emerging Markets Index is used to measure the financial performance of companies in fast-growing economies around the world. The index tracks mid-cap and large-cap stocks in 25 countries.

MSCI World Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets.

Preqin Infrastructure Index captures in an index the return earned by investors on average in their private infrastructure portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

Preqin Private Equity Index captures in an index the return earned by investors on average in their private equity portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

Preqin Real Estate Index captures in an index the return earned by investors on average in their private real estate portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

S&P 500 Index is a market-cap-weighted equity index of 500 widely held, large-capitalization U.S. companies.

S&P UBS Leveraged Loan Index measures the market-value-weighted performance of the investable universe of USD-denominated leveraged loans.

VERUS 2025-08 represents Verus Securitization Trust 2025-08’s issuance of an RMBS transaction backed by primarily newly originated first- and second-lien, fixed- and adjustable-rate residential mortgage loans, including mortgage loans with initial interest-only periods, to prime and nonprime borrowers.

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