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Retail interest fuels third-party CLO equity return
by Lisa Lee
After a few years skulking in the shadows, third-party CLO equity is fundraising furiously — and gaining traction among new kinds of investors.
Previously, third-party equity had a difficult time getting the attention of institutional investors. That appears to be changing, with a wide range of structured credit specialists raising money over the summer. Irradiant and CIFC both raised millions for traditional fund structures that invest in CLO equity, according to filings in August.
“The current environment offers a good window for tactical CLO equity sourcing,” said Dagmara Michalczuk, co-CIO at Tetragon Credit Partners. “CLO debt demand technicals remain strong and we have more clarity on the interest rate path, while mid-term a number of catalysts could trigger periods of elevated loan market volatility that would be accretive to equity with locked-in funding.”
The current environment offers a good window for tactical CLO equity sourcing
Dagmara Michalczuk
Co-CIO
Tetragon Credit Partners
Another type of vehicle looks to be having an even better summer — public funds available to retail investors and institutions. In June, Sound Point had an initial public offering of a CLO equity vehicle, and Pearl Diver did the same in July, joining veteran public funds like Eagle Point Credit Company and Oxford Lane Capital Corp.
Another of Eagle Point’s CLO equity funds, Eagle Point Institutional Income Fund, marked an important milestone recently when it surpassed USD 100m in assets.
“It’s multiple channels. It’s not just the institutional investors, but also the retail investors who have more interest in the product,” said Dan Ko, a senior principal and portfolio manager at Eagle Point. “It’s around the globe, throughout the Middle East, Asia and in the US.”
Carlyle joined those offering CLO equity to retail investors when it took over and transformed Carlyle Credit Income Fund (CCIF) into a CLO equity fund in July 2023. Since then, the fund has grown and AUM now stands at over USD 180m including leverage, according to the latest public statements. The dividend and related yield based on NAV has risen from 8.0% to 16.5% for common shares since the change.
“There is a lot more demand for CLO equity this year,” said Lauren Basmadjian, global head of liquid credit at Carlyle, and CEO of Carlyle Credit Income Fund. “The relative value and premium for CLO equity over CLO BBs is better for investors this year.”
“There are more of us now,” added Ko about publicly traded CLO equity funds. “That will draw more attention to CLO equity as an asset class from the retail community.”
