Bluerock High Income Institutional Credit Fund Reports Strong Fiscal Year Performance

The fund achieved significant returns and maintained a robust investment strategy amid fluctuating markets.

December 10, 2024

Steady Returns Amid Market Volatility

The Bluerock High Income Institutional Credit Fund (the Fund) has announced its fiscal year-end results, showcasing its ability to generate consistent income and solid returns. With a year-to-date total return of 11.65% for its Class I shares and an annualized distribution rate of 12% since inception, the Fund continues to fulfill its objectives of high current income and diversification.

Focused on senior secured loans and collateralized loan obligations (CLOs), the Fund leverages WhiteStar Asset Management as a subadvisor. WhiteStar’s expertise in structured credit products has supported the Fund’s strategy of minimizing default risks and enhancing repayment likelihood.

Performance Metrics and Portfolio Strategy

As of September 30, 2024, the Fund’s assets were diversified across 54.61% in CLO debt and 48.48% in CLO equity. This allocation underscores its strategic emphasis on structured credit instruments. Notably, the Class I shares outperformed benchmarks, reflecting a resilient portfolio design suited for both rising and falling interest rate environments.

The Fund’s quarterly distributions, which recently shifted to a floating rate policy, align with its goal to mirror underlying investment income. Total distributions for the year amounted to $19.21 million, with $3.07 million reinvested.

Financials and Operational Highlights

The Fund reported net assets of $162.58 million, an increase from $101.95 million in the prior year. This growth stems from robust investment income, exceeding $17.87 million, complemented by effective cost management. Operating expenses were largely offset by voluntary waivers from the investment advisor, who absorbed $6.21 million in fees.

The Fund’s credit risk management remains a cornerstone, with an average annualized default rate of 1.77% and projected yields on CLO equity ranging between 9.78% and 22.65%. Investments were primarily in U.S.-based entities, diversifying across industries to mitigate risks.

Risk Factors and Market Challenges

The Fund acknowledges inherent risks tied to its focus on CLOs, including liquidity constraints and market volatility. With CLO equity positions in first-loss tranches, the Fund assumes higher risk in exchange for potential higher returns. Additionally, the shift from LIBOR to SOFR introduces uncertainties, albeit with mitigated impact through proactive management.

Looking Ahead

Management projects a favorable outlook for structured credit products. Expectations of moderated interest rates and attractive yields across fixed-income markets provide optimism. The Fund’s strategy of targeting CLOs with low default probabilities and high cash flow predictability remains pivotal to sustaining its performance trajectory.

Investors are encouraged to consult the prospectus for detailed risk disclosures and tax considerations. The Fund’s strategy aligns with long-term investment goals, though it is best suited for investors with a tolerance for limited liquidity and higher risk exposure.