Speaking on a panel at the conference, Cara Roche, portfolio manager at Zais Group, said CLO equity investors were better off in deals with less diversity. “A little less diversity in the portfolio and more correlation can work for you because you’re actually pushing more of the risk up into mezzanine tranches in those scenarios,” she said. Therefore, high conviction portfolios could be appealing for equity investors. In the new issue CLO market, it would be difficult to produce a deal with a lower-than-average diversity score given junior CLO debt spreads have jumped wide (). And in the CDS market, spreads have been so tight as to make CSO economics challenging (). Craig Bergstrom, chief investment officer at Corbin Capital, says the current bout of loan volatility is being caused by a mixture of factors. “We’ve been seeing a lot of dispersion — more than you can justify on a true fundamental credit basis,” he says. “Last December, it was overwhelmingly technical and here there is definitely some shade of fundamental, especially within double Bs.”