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With increasing capital allocations, the need for portfolio management, operational automation and risk mitigation inevitably follows.
Having recovered from the COVID-19 nadir - when CLO (collateralized loan obligation) issuances all but collapsed, the market is back to full health, with activity in the US and Europe scaling new heights.
In the US, CLO issuances topped $184.4 billion in 2021, or double what it was in 2020,1 while European issuances totaled €38.5 billion, a 75% year-on-year increase.2 Given the meteoric issuance volumes in 2021, it should not be a surprise that issuances of new CLOs in the US – together with re-financings and resets – have been slightly lower this year.
The ratings agency continues that it expects new issues of CLOs in the US to reach $130 billion by year end3. Similar to the US, activity has also slowed marginally in Europe year on year. Although issuances are down in 2022, it must be noted that they are still incredibly high by historical standards.
CLO performance – relative to other debt instruments such as Treasury Bonds, bank loans, high yield bonds and investment grade bonds – has been strong. For example, data from Bank of America Merrill Lynch says that while US Treasury Bonds and investment grade corporate bonds yielded – 1.82% and -0.96% respectively in 2022, Triple A CLOs returned 1.4% and Double B-rated CLOs generated 8.9%.4
In addition, CLOs are likely to prove resilient in the face of fluctuating interest rates and 40-year inflationary highs. According to Pinebridge – a leading asset manager – leveraged loans and their CLO tranches are floating rate instruments, meaning their prices move less than fixed rate instruments when interest rates rise and fall, before adding they are also an effective hedge against inflation risk.5
With CLOs offering excellent diversification in what is becoming an increasingly volatile and unpredictable market, expect issuances to remain strong as 2022 progresses.
If CLO market participants are to navigate these volatile markets, they need to utilize effective technology solutions to help them do so. In order to mitigate inefficiencies and the risk of making critical decisions off the back of inaccurate data, CLO managers need a homogenized front, middle and back office which is interconnected through a singular system.
At the same time, CLO managers are facing increasing pressure and scrutiny from investors, regulators and ratings agencies. In order to meet these growing transparency requirements, managers need to have better insights into their investment composition and operational processes. This can be facilitated by making use of best of breed technologies which can support all types of CLO assets; automate repetitive processes and data entry; simplify workflows and unite the front, middle and back office.
From portfolio management to research, trading, and compliance, Broadridge delivers a purpose-built and robust suite of solutions that help CLO Managers make better investment decisions. Designed to be adaptable to any process or workflow, the Broadridge CLO platform aggregates data from internal and external data sources, empowering users with a single, award-winning, integrated solution. Our solutions support the entire investment life cycle and can be modeled for any workflow, store any data, and integrate with any system.
1 White and Case – February 14, 2022 – CLO activity skyrockets in the US
2 White and Case – January 31, 2022 – European CLOs and the unstoppable impact of ESG
3 S&P – April 28, 2022 – S&P Global Ratings sees pullback in full-year 2022 new issue collateralised loan obligations following record levels in 2021
4 White and Case – February 14, 2022 – CLO activity skyrockets in the US
5 Pinebridge – March 2, 2022 – CLOs – Benefits and Risks
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