Basic Premium

Rethinking WAS: Uncoupling Spread Levels from Risk in EU CLO Performance

It could be assumed that managers with higher Weighted Average Spreads (WAS) are likely to present a higher collateral risk profile and, on average, face greater realised and unrealised principal losses when adjusted for vintage. Conversely, more conservative managers with lower WAS tend to display greater resilience, resulting in lower levels of principal loss, also adjusted for vintage. However, as illustrated in the table below, the median reported WAS metrics across the four quartiles by MVOC are very close, ranging from 3.94% to 3.96%, indicating that reported WAS appears to have limited influence on MVOC performance.

EU CLO Managers (Performance)

EU CLO Manager Report: KKR

To calculate the total/MV/interest return alpha, we begin by determining the total/MV/interest investment return for each complete period, such as from a deal’s closing date to the most recent reporting date. This is achieved by compounding the portfolio’s monthly (or periodic) total/MV/interest return since the closing date. We then annualise the total/MV/interest portfolio return and compare it with the annualised return of the index. The difference represents the total/MV/interest return alpha, as illustrated here.

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