News in brief

CLO ETFs, which have emerged only in the past 18 months or so as a significant player, are relatively untested in periods of market sell-off. So far, investors aren’t yanking their cash from CLO ETFs, and outflows have been contained.

“Despite experiencing a few weeks of outflows, market makers have successfully absorbed the liquidity, preventing any significant sell-offs,” said Serhan Secmen, head of global CLO platform at Napier Park.

Take Janus Henderson’s AAA CLO ETF (JAAA), for example. This year, JAAA has attracted USD 4.63bn, contributing to rapid tightening of spreads in the first two months of 2025.

But with investors in risk-off mood, the AAA ETF is seeing its growth stall. AUM is down 3% since the end of February.

“I think a lot of people have said, as soon as there’s some volatility, you’re going to get a bunch of withdrawals,” said John Kerschner, head of US securitised products and portfolio manager at Janus Henderson. “In JAAA in March, we had some days where we had some redeems or withdrawals, but they’ve been very manageable.”

Liquidity has been plentiful, say market participants. Trading of CLO ETFs tends to pick up during a dislocation and JAAA in March averaged over eight million shares trading on a weighted average daily basis. This figure is up from 6-7 million earlier in the year.

“It’s kind of nice that there’s two-way flow, because this demonstrates to our investor base that the liquidity doesn’t dry up when we get this type of volatility,” said Kerschner.

In the ‘Credit Exchange with Lisa Lee’ podcast, KKR’s global head of private credit Dan Pietrzak discussed how the firm is starting to see better terms and conditions, and pricing, than a handful of weeks ago.

“In some ways, these types of markets, when there is volatility, is when private credit should be able to shine,” Pietrzak said.

Sponsors like direct lenders for their certainty of execution and they are increasingly comfortable turning to the private markets. Certain situations warrant direct lending over a broadly syndicated loan. If there is a carve-out and the company can’t get rated, or if the company is expecting a meaningful amount of growth and wants access to committed capital, the private market makes sense.

There are also times where the BSL market shuts down and direct lending is the only game in town, but that looks unlikely at this time, Pietrzak said. The syndicated loan markets started off the year strong and it could be that this volatility is “a blip”.

That said, KKR is incorporating tariff impact when underwriting new deals. The firm is seeking out less cyclical corporate borrowers and making sure it has levers it can pull if something goes wrong. Any concerns are more about the tariff impact on the existing portfolio.

“It isn’t a liquid loan,” said Pietrzak. “The biggest and most important decisions we’re making are upfront.”