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AI helps Anthelion escape worst of First Brands fallout
by Shant Fabricatorian
Artificial intelligence-focused CLO manager Anthelion was one of a number of investment managers sucked in by the generous loan spread premium offered by auto parts supplier First Brands.
Anthelion’s first public CLO priced on 30 June, three months before First Brands’ collapse. Around 1% of the CLO portfolio was believed to have been allocated to First Brands’ loan. Notwithstanding what a source described as an overall conservative risk weighting in its portfolio, the lure of a 200bp-plus spread premium over other loans with comparable metrics represented an opportunity.
The manager has attracted attention in the market for its multi-million-dollar investment into a proprietary AI platform called Dave, which employs a wide array of inputs and datasets, some going back decades. The aim of this ‘bigger calculator’ is to aid in detecting patterns, helping identify both investing opportunities and warning signs more efficiently.
For Anthelion, the First Brands alarm sounded in early September when the manager had around USD 5m invested in the credit. Its AI model identified that a number of rate-of-change signals for First Brands were coming out negatively, despite the loan trading in the mid-90s. That prompted the manager to sell the bulk of its position above 90 cents on the dollar.
Unfortunately, the investing team overrode the AI recommendation and elected to hold around a third of their position until later in the month. By then the loan had dropped to around 50 cents in the dollar. Despite the loss, Anthelion escaped relatively lightly in comparison to other managers which sold out later.
EDITORIAL NOTE: The version of this article published in the print magazine included a statement that around 5% of the CLO’s portfolio was believed to have been allocated to First Brands’ loan. This was incorrect. Creditflux apologises for the error.
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