Summarised Findings (Monthly)
- ESG EU CLOs slightly underperformed their non-ESG counterparts on average
- ‘Equity-friendly’ managers can deliver both equity-friendly and debt-friendly investment performance.
- Conversely, ‘debt friendly’ managers can underperform on the MV return (and interest return) front.
- The total amount of incentive fees accrued (on outstanding 2013–2018 BSL CLO deals) by a handful of US CLO managers are not too different from that of EU CLO managers. Note that the US CLO market is much bigger than the EU CLO market.
- It is interesting to note that investors are not really differentiating CLO deals with or without a single B tranche when setting the 12% IRR incentive fee threshold.
- CLO equity cash-on-cash returns are absolutely not the same as CLO equity investment performance
- On average, IRRs of 137 redeemed 2013–2018 vintage US CLO equity tranches have been anaemic.
- Having said that, redeemed 2020 US CLO deals’ IRRs have been phenomenal.
- Top-tier US CLO managers still do well – which demonstrates the importance of manager selection.
- Managers should perhaps be assessed based on their investment performance track record rather than deal metrics.
- Every CLO deal is unique in its own way. Still, if the gap between the CLO equity target price (to get to a 12% IRR) and their NAV is too big – generally speaking – it would be challenging to deliver the final targeted IRR in the low-teens as time is running out for a number of seasoned deals.
- EU CLOs have around EUR 9bn of fixed-rate exposures. On average, two managers have over 10% fixed-rate exposure, while nine managers have 7.5–10% exposure.
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.
