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Clopremium > Blog > No Login Needed: Enhancing transparency in the CLO market > Perception vs Performance – Which One Matters More?
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Perception vs Performance – Which One Matters More?

CLO Research
October 11, 2021
posted on Oct. 11, 2021 at 12:26 pmJuly 12, 2022

Perception vs Performance – Which One Matters More?

What factors can play an important role in the pricing of primary CLO liabilities?

The list of factors is potentially very long, but please see several of them below:

  • Size of managers as measured by leveraged loan AUM
  • Size of the CLO management team
  • Equity-friendly or debt-friendly perception
  • Portfolio WARF (higher quality because it is low?)
  • Portfolio weighted average spread (conservative portfolio because the WAS is tight?)

A recent study conducted by CLO Research reveals that US CLO managers with very similar investment performance as measured by their MV alpha (i.e. MV annualised return relative to the loan index’s MV return) could have a very different WACC (based on discount margins).

As we all know, it usually takes a bit of time for one to change one’s perception of certain CLO managers. Some CLO managers underperform relative to the index – but they still get premium prints, while others consistently outperform the market and yet they get average or even below-average WACC prints.

CLOs are managed vehicles, so it might be a good idea for investors to try focus more on the credit skills and investment performance of managers over a period of time.

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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 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.

Tags:Perception
CLO ResearchOctober 11, 2021
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Managers’ MV Alpha and Their New Issue’s WACC (Based on Discount Margins)

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EU CLO Managers’ Investment Performance Since Jan 2020

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