It is often assumed that actively managing CLO portfolios leads to better performance. This belief hinges on the idea that active trading enables managers to optimise portfolio composition, mitigate risks, and capitalise on opportunities as they arise. However, contrary to this widely accepted notion, there is limited evidence to suggest that active trading enhances collateral performance, particularly in terms of preserving capital. Based on an in-depth analysis of both EU and US BSL CLO deals from the 2021 vintage, the findings challenge the prevailing market sentiment.
For further insights, refer to the following articles:
EU CLOs: Is Increased Trading Activity the Key to Capital Preservation?
CLO Insights: The Interplay of Fees, Trading, and Capital Preservation
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Although each CLO deal is unique, analysing historical prepayment rates during the post-reinvestment period based on the original collateral balance provides valuable insights. This approach helps identify managerial tendencies, distinguishing those who consistently maintain lower prepayment rates from those with higher rates.
The average rates for the 101 US CLO managers analysed are 20.1%, 30.6%, and 27.5% for the first, second, and third post-reinvestment years, respectively.
Notably, 11 EU CLO managers achieved annualised prepayment rates in the single digits for the first two years post-reinvestment.
For detailed findings, see:
US CLOs: Annualized Prepayment Rates During Post-RP by Manager
EU CLOs: Annualised Prepayment Rates During Post-RP by Manager
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From a debt investor’s perspective, CLO managers exhibit varying performance levels. Based on MVOC rankings, Redding Ridge Asset Management and Bridgepoint have excelled among EU CLO managers. In the US BSL CLO market, Oakhill and Golub have delivered strong results, particularly among managers with at least 10 deals from the 2013–2023 vintages.
For more information, refer to:
EU CLO Managers: Rankings Based on MVOC (BB)
US BSL CLO Managers: Rankings Based on MVOC (BB)
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Blackstone remains the largest global CLO manager, with over $50 billion in CLO collateral under management. As of 30 September 2024, a total of 171 CLO managers collectively managed approximately $1.3 trillion in CLO AUM.
For an in-depth view, see:
Global CLO Collateral AUM by Manager as of September 30, 2024
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US CLO managers in the top quartile for MVOC rankings generally exhibit below-average exposure to assets priced below 80 and CCC/Caa-rated assets. However, exceptions such as NYL, BlackRock, and GoldenTree demonstrate that not all CCC/Caa assets are alike. Most top-quartile managers recorded below-average annualised par losses, except for Hayfin and Aristotle, which held small amounts of below-80 assets.
EU CLO managers in the top MVOC quartile similarly showed below-average exposure to assets priced below 80 and 90, as well as to CCC/Caa-rated assets. KKR stands out as an exception, with above-average exposure to CCC/Caa-rated assets, underscoring that not all CCC/Caa names are equal.
See detailed analysis in:
Performance and Risk Profile of US BSL CLO Managers
Performance and Risk Profile of EU CLO Managers Across 2019-2021 Vintages
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Deals with an annualized par loss below 0.2% may have a greater tendency to underperform in MVOC terms, though this is not universally observed.
For more, read:
US BSL CLOs: Assessing the Impact of Par Build on Performance
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When reviewing the number of EU CLO deals with an annualised par build exceeding 0.2%, the distribution across the quartiles appears fairly even. Interestingly, the number of deals experiencing an annualised par loss of over 0.2% or 0.3% is comparable across the first three quartiles. In other words, a deal with an annualised par loss of more than 0.2% or 0.3% may be found in the top, second, or third quartile by MVOC.
For further exploration, refer to:
EU CLOs: Does Par Build Really Matter?
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It is often assumed that managers with higher Weighted Average Spreads (WAS) are associated with higher collateral risk profiles and, on average, experience greater realised and unrealised principal losses when adjusted for vintage. Conversely, more conservative managers with lower WAS tend to demonstrate greater resilience, resulting in lower principal losses, also adjusted for vintage. However, as shown in this article, the median WAS metrics across the four MVOC quartiles are remarkably similar, ranging from 3.94% to 3.96%. This suggests that reported WAS has limited impact on MVOC performance.
Explore more in:
Rethinking WAS: Uncoupling Spread Levels from Risk in EU CLO Performance
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Deals with high fixed-rate exposure (above 9% or 13%) are more concentrated in the lower MVOC quartiles, indicating a potential link between fixed-rate exposure and lower MVOC levels.
For a detailed discussion, see:
Examining Fixed-Rate Exposure Across MVOC Quartiles in EU CLO Deals
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As of 30 September 2024, the total EU CLO AUM stood at approximately EUR 240 million, reflecting a Compound Annual Growth Rate (CAGR) of 20.29% since 31 December 2017. CVC’s AUM, in particular, has grown at a CAGR of 22% over the same period.
See:
EU CLO Managers: Trends in Collateral AUM (Updated)
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Deals from the 2013 vintage performed strongly, with the average deal reaching an IRR of 11.9%. Six deals from that vintage particularly stood out with high IRRs.
For a closer look, read:
US CLO Equity IRRs: Deals Redeemed Year-to-Date
Disclaimers
The information, research, data, research-related opinions, observations, and estimates contained in this document have been compiled or arrived at by CLO Research Group, based upon sources believed to be reliable and accurate, and in good faith, but in each case without further investigation. None of CLO Research Group or its service providers; authorised personnel, or their directors make any expressed or implied presentation or warranty, nor do any of such persons accept any responsibility or liability as to the accuracy, timeliness, completeness, or correctness of such sources and the information, research, data, research related opinions, observations and estimates contained in this document. All information, research, data, research-related opinions, observations, and estimates in this document are in draft form as of the date of this document and remain subject to change and amendment without notice. Neither CLO Research Group nor any of their third-party providers shall be subject to any damages or liability for any errors, omissions, incompleteness, or incorrectness of this document. This article is not and should not be construed as an offer, or a solicitation of an offer, to buy or sell securities and shall not be relied upon as a promise or representation regarding the historical or current position or performance of any of the deals or issues mentioned in it.
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