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January 2024 | Issue 260
Analysis
CLOs
2023: a bumper year for CLO funds
It looks like 2023 will finish as a solid year for most credit funds, and an outstanding one for CLO funds. But funds pursuing corporate distressed strategies continued to struggle
It will be some time in February before we learn the final performance of the universe of credit funds we track. But even so it seems unlikely CLO funds will do badly.
Our index for those funds, which must have more than half of their assets invested in CLOs, is up almost 16% year-to-date. And many individual funds are in the high twenties. Some of that performance can be attributed to the recovery from 2022 when CLO valuations took a tumble. But performance was also boosted by strong distributions from many older vintages.
Anaemic absolute performance
Other fund categories haven’t had as good a year though. In absolute terms the year-to-date returns of 9.4% for our structured finance index, or 7.5% for credit multi-strategy don’t look too bad, but that has to be put into the context of a world where the Federal Reserve base rates are 5.33%. Against that backdrop, LPs will be disappointed by such anaemic returns.
Perhaps the biggest surprise this year is that our universe of corporate distressed funds continues to struggle, even as restructurings finally pick up. But it should be noted that we have a limited number of such funds reporting, and the trend for DIP restructurings means that it will be some time before distressed investors can realise their gains.
The first signs of that may already be visible though, with Pictet’s Alt – Distressed & Special Sits fund the second best performer in October amongst all our funds.
Creditflux fund indices performance 2023*
*All YTD figures are as at October 2023 Source: Creditflux
Crystal leads the way
Turning to individual fund performance, our table of the top 30 funds this year is, as expected, dominated by CLO funds. BK Opportunities Fund V, managed by Crystal Fund, and Lupus Alpha CLO Opportunity Notes II are both sitting at around 30% year-to-date returns, but they are followed closely by a wider set of CLO funds that have returns in the mid twenties. As well as other funds from Crystal and Lupus Alpha, this pack also includes funds managed by Orchard, Alcentra and Capital Four.
9.4%
Our structured finance index is the second best performer YTD*
Crystal Funds is characteristic of many of these managers. Although starting out as a specialist investor in CLO equity, the firm pivoted into junior mezz investments. BK Opportunities Fund V itself is a European fund, which focuses on single-Bs. Portfolio manager Olivier Gozlan’s explanation for its outstanding performance can be found here.
Creditflux fund indices historical performance
Axiom’s top ten outlier
The only outlier in the top ten grouping is Axiom’s Credit Opportunity Fund. That is a non market-directional long/short credit fund invested in credit derivatives instruments. According to fund documents, the objective of the fund is to achieve positive risk-adjusted returns to investors primarily through opportunistic investments in credit markets. The fund mainly invests in Europe and North America, but may also invest a portion of its assets globally.
30.6%
Gain in 2023 YTD* for Crystal Fund’s BK Opportunities Fund V
*All YTD figures are as at October 2023 Source: Creditflux
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Global credit funds & CLO's
January 2024 | Issue 260
Published in London & New York.
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