November 2021 | Issue 240

Amherst Pierpont takes total return approach as it builds CLO analytics platform

Sayed Kadiri headshot
Sayed Kadiri
Amherst Pierpont is making CLO analysis the focal point of a push into the asset class, with the brokerage creating a platform that looks at the alpha and beta generated by a CLO manager, as well as their pricing on CLO liabilities.
The project is led by Steve Abrahams, head of investment strategy at Amherst Pierpont. He says the role of the manager is a distinguishing feature between CLOs and other structured products, and up to now there have been limited ways of trying to understand how managers influence a CLO.
“Trying to compare one CLO to the next, or one manager to the next, and infer whether particular attributes distinguished the good from the rest is difficult,” says New York-based Abrahams. “Any time you try to juggle more than a handful of dimensions you have signed up for a complex undertaking. Most investors rely on reputation to determine whether managers are good, bad or indifferent because, in the face of complexity, it is natural to fall back to what you know.”
“Most investors rely on reputation to sort managers”
Steve Abrahams, Head of investment strategy | Amherst Pierpont
Analysing total returns from CLO loan portfolios is one part of the framework developed by Amherst Pierpont. It separates alpha and beta generated by CLO managers by comparing loan returns to the S&P/LSTA Leveraged Loan Index, in a similar vein to how loan mutual fund performance is analysed.
It marries this with analysis of CLO liabilities, comparing new issues to the market on a tranche-by-tranche basis.
Amherst Pierpont plans to produce a chart based on this asset and liability evaluation, which illustrates one of four recommendations for each CLO manager: buy CLO equity, sell CLO equity, buy CLO debt or sell CLO debt.
“The model has been well received and can pinpoint managers that price wide relative to their performance,” says Adam Schwartz, who joined in June as Amherst Pierpont’s head of CLOs and structured credit.
The firm aims to make its analytics available on a website.
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Global credit funds & CLO's
November 2021 | Issue 240
Published in London & New York.
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