Opinion CLOs

CLOs seem like Premier League members in the world of finance

Welshcake

My shins are sore. This stems from a sunny weekend in which my chance to relax in the garden and reflect over a cocktail on the upcoming Welsh Assembly elections was imperilled by the child next door. The boy is an avid Man United fan and was kicking his football against the garage and shouting about winning the European Super League.

It wasn’t the best return to society I could have envisaged, but it is good finally to be out of my lockdown bunker.

A league that was rather less than super

In brief, the plan would have created a breakaway elite league of 12 to 15 European football teams — including five of the English Premier League’s biggest clubs plus Tottenham. These clubs were to receive bags of extra cash, with a permanent divide created between them and the rest of the football world. But such was the public backlash that most of the would-be founding teams quickly reversed their agreements to join the league and begged forgiveness from fans for being so greedy.

JP Morgan, which provided a €3.5 billion grant to entice the clubs, has also expressed regret for its involvement. But not much has been said about what it could better spend the money on. It might only buy you a 10th of the UK covid test and trace system, but we are still talking about a princely sum.

My suggestion is that the money should be invested in a league of super senior CLO paper. This could easily follow the trend of US firms such as State Street and Bank of America stepping up triple A purchases, and it would have little to fear from Gary Neville or any other football pundits.

Following the football Super League’s logic of selecting historically significant clubs for membership, I suggest the Super Senior CLO League portfolio should comprise household names, such as this year’s biggest issuer Carlyle, as well as giants that have recently been less active, such as Guggenheim Investments and Highland Capital Management.

Wild imaginings aside, the concept of a CLO super league is something that is genuinely resurfacing as a consideration for 2021 amid speculation that triple-A buyer Nochu could return as a heavy anchor for senior tranches in the industry’s big name deals. The bank’s decision to quit in 2019 had less to do with pundit soundbites (although they certainly didn’t help) than Japanese regulator scrutiny, but its failure to reset or refinance deals from its old book has opened the question of when entry into new deals could once again become palatable.

For now, there remains a gap to be filled, despite continued investment by other Japanese stalwarts Japan Post and Sumi Life throughout the past year, especially since it seems unlikely Nochu will ever again work on the scale it used to command.

CLOs offer opportunities for all players

As more and more firms prepare to get involved in CLOs, and demand increases for experienced professionals, there is a wide diversity of strategies to suit every investor type. CLOs have a highly privileged position right now and can even become the epicentre for important conversations around improving standards and exercising beneficial influence over borrowers’ environmental, social and governance policies.

Here’s to high hopes! I’ll take a kick in the shins any day of the week for that.