Share this report:
Global credit funds & CLO's
May 2023 | Issue 254
Published in London & New York.
Copyright Creditflux. All rights reserved. Check our Privacy Policy and our Terms of Use.
Opinion
May 2023 | Issue 254
Past returns
Tracing Fair Oaks’ roots
10 years ago in Creditflux, we reported on Miguel Ramos Fuentenebro’s nascent firm GMB Partners securing its first mandate when listed fund Greenwich Loan Income Fund hired GMB to oversee CLO investments.
A year later, the fund, renamed GLI Finance, spun-off its CLO investment arm into a new firm, Fair Oaks Capital, which was founded by Ramos Fuentenebro and other senior CLO officials.
Fair Oaks took $73.5 million of CLOs from GLI as its seed portfolio and has grown into one of the best-known CLO investors in the business, as well as diversifying into debt.
Points up front
CLOs: safer than money in the bank
We’ve long extolled the virtues of CLO investments. But at the IMN US Investors’ Conference on European CLOs and Leveraged Loans in New York last month, Eagle Point Credit Management’s Daniel Wohlberg pointed out that the relative value proposition has become skewed.
“It’s head-scratching when we see some deals printed,” he said, referring to new CLO economics. “Maybe you’d rather buy Sofr than the return you’re seeing on it. My high yield savings account has a better return than some CLO equity.”
That’s a bleak outlook when the highest yielding US savings accounts are paying around 5%. But with the US banking crisis making depositors fear their cash is not 100% safe — and the default rate on CLO debt tranches still miniscule — perhaps CLOs will become viewed as a safer alternative to savings accounts.
High yield savings accounts might provide a better return than CLOs, but what about the risk?
Speak up – you’re among friends
At a National Association of Insurance Commissioners engagement meeting with the CLO community last month, the first question on the conference call was not: how did you arrive at your modelling scenarios? Nor was it anything to do with how the reinvesting aspect of CLOs would be factored into the NAIC’s assumptions.
It was: are there any journalists on the line? We’re not all muck-rakers. Honest!
THEY SAID IT
“CLOs are the financial cockroach. They will survive”
Napier Park Global’s Serhan Secmen has faith the CLO market can withstand more pain in 2023, giving it a back-handed compliment at the IMN CLO conference.