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Opinion

November 2021 | Issue 240

Opinion

Credit

Growth in credit products lets investors express sector-specific views as dispersion ticks higher

Kelley Baum,

Head of credit derivatives

III Capital Management/AVM

Thomas Majewski,

Founder & managing partner

Eagle Point Credit Management

Opinion CLOs

CLO equity investors have long accepted basis risk… but an off-market adjustment does not work

Opinion Credit

No-one talks about the part oil price surges played in the 2008/9 global financial crisis

Welshcake, welshcake@acuris.com

Past returns

Insurers weigh CLO barbell trade to fight Solvency II

Five years ago in Creditflux we reported that insurers in Europe were putting on a CLO barbell trade in reaction to Solvency II regulations which came into effect in January 2016. Conning Asset Management’s David Brealey told us some insurers were buying CLO triple As and double Bs. The double B component incurred 100% spread risk, but 6.5% yields married with senior CLO tranches made up for this.

Solvency II continues to prevent European insurers from allocating heavily to CLOs, while in the US, the National Association of Insurance Commissioners has been rigorously investigating CLO exposure.

Points up front

Definitely not an ex-parrot

One of the biggest credit fund launches last month was Arini, led by star credit trader Hamza Lemssouguer. But the debut was nearly derailed after Credit Suisse Asset Management pulled its support for the firm, which could easily have led to a situation where Arini ceased to be.

In the end, Squarepoint Capital stepped in and Arini was reborn. The firm is reportedly named after Lemssouguer’s passion for breeding exotic parrots (the Arini clade of parrots and macaws are found in central and South America).

London-based Lemssouguer is a high-flyer. While at Credit Suisse he is reported to have generated huge revenue from the bank’s European high-yield desk — so much so that when he decided to leave in December, Credit Suisse initially pledged support through CSAM.

If Lemssouguer mimics his run on the sell-side for Arini, investors will surely be clamouring to fly high with him.

Looking for a repeat: Lemssouguer will be hoping he’s as adept at reprising past performance as the talkative Arini

HPS gives it 200%

One of the biggest fundraisers this year in credit is HPS Investment Partners. Its $11.7 billion Specialty Loan Fund V totals $15.4 billion including leverage.

This is a fantastic effort from the firm — but HPS appears to have taken the set-the-bar-low fundraising tactic to the extreme: documents seen by Creditflux suggest the fund originally had a hard cap set at $6 billion.

THEY SAID IT

“Remove call option from CLO assets and liabilities”

A CLO investor, commenting in Creditflux’s CLO Census, comes up with a drastic way of making CLO cashflows a whole lot easier to model

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Global credit funds & CLO's

November 2021 | Issue 240

Published in London & New York.