Sierra's Reserve Management Strategy has added Investment-Grade CLOs, expanding the types of high quality real-world assets backing SIERRA. This addition demonstrates the benefit of partnering with OpenTrade, as Sierra is the first liquid yield token globally to allocate to PGIM’s AAA-rated CLO ETF. 

What are AAA-Rated CLOs?

Collateralized loan obligations (CLOs) are structured credit vehicles that pool corporate loans and issue tranches of debt securities backed by these loan portfolios. AAA-rated CLO tranches represent the senior-most position in the capital structure, which reduces credit risk through the subordination of lower-rated tranches.

Adding AAA-rated CLOs to Sierra’s Reserve Management Strategy offers several benefits:

• Low duration risk - PAAA has an average duration of less than 2 months, which means it exhibits minimal interest rate sensitivity compared to longer duration fixed income investments like corporate bonds

• Yield enhancement - PAAA provides incremental returns above U.S. Treasury Bills and Commercial Paper while still maintaining an investment-grade rating

• Credit profile - As the senior position in CLO capital structures, AAA CLOs benefit from credit enhancement as any losses are first absorbed by subordinated tranches

Why Choose PGIM’s CLO ETF?

CLOs have seen significant traction onchain recently, with many liquid yield tokens allocating to the tokenized version of Janus Henderson' s JAAA CLO product. However, Sierra has opted to take a different approach by allocating directly to PGIM’s AAA CLO ETF offchain through OpenTrade. 

PGIM is the asset management arm of Prudential Financial Inc., which is one of the largest financial services companies globally with over $1.5 trillion in assets. PGIM has demonstrated a strong track record of securitized credit, which has been reflected in lower volatility of PAAA compared to JAAA. Additionally, as Sierra is allocating directly to PAAA we benefit from superior liquidity available on the NYSE Arca ETF market.

Institutional-Grade Approach

As with all reserves backing SIERRA, Sierra exclusively uses Fireblocks for custody and implements strong controls covering address whitelisting, transaction policies, signing quorums and disaster recovery powered by Station70. SIERRA holders also benefit from the end-to-end institutional-grade operations and processes implemented by OpenTrade, which enable seamless movement of capital from USDC onchain to safeguarding PAAA securities in Tier-1 global banks. 

As a SIERRA holder, you can verify in real-time the allocation of reserves backing SIERRA to the PAAA CLO vault powered by OpenTrade by analyzing Sierra’s Transparency Dashboard and Issuer Vault. Additionally, we publish weekly vault reports summarizing OpenTrade vaults that Sierra has allocated into.

"Adding AAA-rated CLOs further improves the risk-adjusted returns for SIERRA holders. By partnering with OpenTrade and Five Sigma Finance, this allocation to PAAA demonstrates the unique advantage that Sierra has in directly accessing high quality RWAs versus being limited to only tokenized RWAs. We’re excited to further expand Sierra’s Reserve Management Strategy with other direct allocations to investment-grade RWAs in the coming weeks." Mitchell Nicholson, Core Contributor at Sierra.