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A successful long-term CLO equity investment hinges on three critical pillars: strong annual distributions, healthy equity NAVs, and a longer-than-average deal life.

According to independent analysis by CLO Research, Generate Advisors has consistently delivered outperformance against the Morningstar LSTA U.S. B/BB Ratings Loan Index on an unlevered basis in recent years. Here’s a set of interview questions from CLO Research, accompanied by responses from Rizwan Akhter, Head of Generate Advisors.

Recent BWIC colour on CLO equity tranches, based on SCI BWIC data, indicates that many have traded well. The IRRs presented in the table within this article reflect the IRRs that primary investors would have achieved, assuming a primary issue price of 95. Notably, among the 2016–2017 vintage deals, Generate CLO 3 recorded an IRR of 13.4%, based on a cover price of 42.8%. This tranche is considered one of the top performers from that vintage. Some more recently issued equity tranches, such as Elmwood CLO 17, Elmwood CLO VII, and Madison Park Euro Funding XIX, have delivered strong IRRs in the range of 15.6% to 18.3%. Primary investors would be pleased to have invested in these equity tranches.

Given the significantly smaller base of US MM CLO AUM, it is unsurprising that annual growth has continued to remain in double figures. In contrast, US BSL CLO AUM recorded growth rates of just 3.3% and 4.3% in 2024 and 2023, respectively, both of which were lower than the 9.2% growth rate recorded in 2020.

Please see the graph below that illustrates the trend line for 2.0 US CLO AUM since 2012. The year-end notional AUM for each period is determined based on the pricing dates of CLO deals and the notional of the underlying collateral. The year 2021 witnessed the largest increase in US CLO AUM, followed by 2014.

According to CLO Research’s independent analysis, RRAM has delivered consistently robust results from both equity and debt perspectives. Here’s a set of interview questions from CLO Research, accompanied by responses from Bhavin Patel, Chief Investment Officer of Redding Ridge Europe.

As illustrated in the table below, apart from the single-B tranche, the term structure at the EU CLO AAA level is considerably steeper than that of the other lower rated tranches.

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Since mid-July 2022, when 3M EURIBOR moved into positive territory and began its upward trajectory, the EU CLO primary and...

The recent pricing of Palmer Square CLO 2025-1 marks a fresh milestone in the 2.0 CLO market. The AAA tranche...

Out of the 50 largest US CLO managers, the managers listed below have achieved over 15% growth in CLO AUM over the past year. Notably, Elmwood, Antares, and Generate Advisors have experienced year-on-year growth exceeding 35%.

Since mid-July 2022, when 3M EURIBOR moved into positive territory and began its upward trajectory, the EU CLO primary and...

According to CLO Research’s independent analysis, Golub Capital has delivered consistently strong results from an investment alpha perspective. Specifically, Golub Capital has achieved substantial outperformance relative to the Morningstar LSTA U.S. B/BB Ratings Loan Index on an unlevered basis over the past several years. Below is a list of interview questions from CLO Research, along with responses from Scott M. Morrison, Managing Director and Head of Broadly Syndicated Loans.

Investing in CLO equity demands a thorough understanding of the asset class and a carefully considered strategic approach. As a first-loss investment, it carries inherent risks, but it also offers the potential for substantive returns. The performance of CLO equity investments is influenced by several key factors.

All things being equal, lower mezzanine tranche investors typically prefer to own deals with a higher probability of being reset.