High Interest Rates Weigh on CLO-Heavy Funds

Higher interest rates have negatively impacted funds that rely heavily on CLOs (collateralized loan obligations). Tighter spreads and reduced investor appetite have made it challenging for these funds to maintain their dividend payments. As a result, OFS Credit's dividend is no longer supported by earnings, reflecting the broader impact of the changing interest rate environment on the CLO market.

Luxembourg’s Intergenerational Sovereign Wealth Fund (FSIL) has made a significant move by allocating 1% of its $900 million portfolio to Bitcoin exchange-traded funds (ETFs), marking one of the first such investments by a European state-backed entity Luxembourg sovereign wealth fund invests 1% in Bitcoin ETFs^[1]. This decision comes amidst a broader shift in the country’s investment policy, which now allows up to 15% of assets to be allocated to alternative investments, including cryptocurrencies, real estate, and private equity.

The announcement was made by Luxembourg’s Director of the Treasury and Secretary General, Bob Kieffer, who noted that the investment is part of the FSIL’s new investment policy, approved by the Government in July 2025. Kieffer highlighted the growing maturity of the cryptocurrency asset class and Luxembourg’s leadership in digital finance as reasons for the investment Luxembourg sovereign wealth fund invests 1% in Bitcoin ETFs^[1].

The allocation, equivalent to about $9 million, is a strategic move that reflects the fund’s increased maturity and the need to address economic, social, and environmental priorities. However, direct cryptocurrency holdings were deemed too risky, leading the fund to invest through ETFs instead Luxembourg sovereign wealth fund invests 1% in Bitcoin ETFs^[1].

This move may come as a surprise to those who have been following Luxembourg’s official stance on cryptocurrencies. In late May, the country’s 2025 risk report classified crypto companies as high-risk for money laundering, even as local institutions ramped up their crypto adoption efforts Luxembourg sovereign wealth fund invests 1% in Bitcoin ETFs^[1].

The decision to invest in Bitcoin ETFs has been seen as a balanced step forward by the FSIL’s management board. While some may view it as too conservative, others might see it as too speculative. However, the board believes that a 1% allocation strikes the right balance while sending a clear message about Bitcoin’s long-term potential Luxembourg sovereign wealth fund invests 1% in Bitcoin ETFs^[1].

This strategic evolution in Luxembourg’s investment policy reflects a broader trend in the financial world, where sovereign wealth funds are increasingly exploring cryptocurrencies and other alternative investments. As the financial landscape continues to evolve, these moves will likely shape the future of investment strategies and risk management.