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 totalled €38.5 billion, a 75% year-on-year increase. 2
However, S&P notes that issuances in the US of new CLOs - together with re-financings and resets – are 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. However, this slowdown is not unique to the US with European issuances also down year-on-year.
Although activity has marginally slowed, CLOs offer a number of compelling opportunities for yield-starved institutional investors.
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 healthy as 2022 progresses.
Identifying The Right Technology
If CLO market participants are to navigate these volatile markets, they need to utilise 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 homogenised 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.
Solutions That Streamline the Entire Investment Life Cycle
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 modelled for any workflow, store any data, and integrate with any system.