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New kids on US CLO block bring contacts and years of experience
by Paul Conley
A handful of new managers will soon price their debut CLOs in the US primary market. Obra Capital and Polus Capital Management are both underwriting credits and building warehouses, according to market sources, with debuts expected within weeks.
But these managers aren’t entirely ‘new’. Rather, as is to be expected in an industry as small and interconnected as structured finance, well-known veterans of the CLO world will run the platforms.
“Most of the investors know you personally as a manager,” said Scott Macklin, head of US leveraged finance for Obra Capital. “In addition, because there is so much data reported for each CLO, it’s easy for investors to examine your style and past performance.”
Macklin was the sole portfolio manager of CLOs for AllianceBernstein. Prior to that he was director of research for performing credit and a member of the portfolio committee for CLO investments at Och-Ziff Capital Management.
David Kim is also a known player. Today he’s the head of US leveraged credit at Polus. Prior to joining Polus, he spent 16 years as a portfolio manager at Goldman Sachs.
Polus also has a large presence in European CLOs. “Although we are a new manager in the US, having a well-established platform in Europe has been a notable advantage. Several of us have also been in the marketplace for a while, and with the CLO market still being very much a personal business, it benefits to have existing relationships,” said Kim.
It is critical to bring enough equity capital to provide a long runway
Scott Macklin
Head of US leveraged finance
Obra Capital
Investors interviewed by Creditflux declined to talk specifically about Obra or Polus, but said they are open to working with new platforms. Doing so, they said, requires a sense that the platform is built to last.
“You have to ask how the platform is being set up and do they have the ability not just to start a platform, but be able to go through the first hard few years and then really build it out so they have the capacity and ability to have some longevity,” said Laila Kollmorgen, who manages CLO tranche investing for PineBridge Investments.
Macklin understands that concern. “It is critical to bring enough equity capital to the table to provide a long runway,” he said.
Another investor said he has worked with new platforms in the past when their strategy coincides with his needs. “I look into the track record of the portfolio managers, the founding partners, and what kind of investment philosophy will those people permeate within the organisation,” he said.
Both Obra and Polus aim to project a cautious approach. “First and foremost, it’s important to be disciplined and to not feel rushed, despite the market being in a good place,” said Kim.
Macklin said: “Stylistically, we are focused on being on the conservative end of CLO managers. When you’re managing 10-times levered vehicles, I think you’re supposed to manage the portfolios conservatively.”
Investors expect a spread premium from a new investor. But compression means the spread for new managers in 2024 is unlikely to be as substantial as in years past.
“We’ve seen compression up and down the capital structure, which certainly helps somebody who’s new,” Kim said.
