Biggest investors add to CLO holdings — but Japanese banks buy more than US-based rivals

Hugh Minch

Senior Reporter

P&G is looking to achieve double-digit returns through a new fund focused on European CLO triple A tranches, named Zoo5. This will “seize a specific alpha opportunity on the CLO asset class with the aim of exploiting a favourable market momentum”, officials at the firm tell Creditflux.

JP Morgan cemented its position as the top investor in the asset class, adding $3.77 billion CLOs in the fourth quarter, to grow its portfolio to $67.21 billion. Citi, whose public filings group CLOs with other ABS products, saw a decrease of $440 million in Q4, while Wells Fargo’s holdings grew, but by just $40 million.

Norinchukin Bank and Japan Post Bank, the two largest Japanese CLO buyers, increased their holdings by $2.48 billion and $2.99 billion, respectively.

Both Japanese banks have been active in the US and in European markets in the first quarter of 2023. However, US banks have not been buying tranches at the same rate as in years past.

Top credit funds in December (%)

Source: bank filings * Includes all ABS

The two Japanese banks have deep pockets, and the ability to add more CLOs if they wish. Nochu’s CLO book is over $26 billion smaller than at its 2019 peak, when the bank held almost $75 billion worth of CLO paper.

Japan Post’s holdings peaked at over $20 billion in 2020, when it held $3.6 billion more CLOs than it does today. As reported by Creditflux, the bank has been making strides into European CLOs for the first time.

Despite turmoil in the global banking sector in March, US CLO triple As are tighter at quarter-end than they were during the last three months of 2022. Creditflux data shows the average triple A print on a five-year US CLO in Q4 was 224.9 basis points. A sharp rally in January took spreads as low as 175bp, before retracing towards 200bp by the end of March.

The average print in Q1 was 192.6bp. August and September was the last time five-year CLOs were pricing in this area.

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Global credit funds & CLO's

April 2023 | Issue 253

Published in London & New York.