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News Investor’s Corner
‘Scale really matters in the CLO business’
Creditflux: We both just came back from ABS East, where the tone was decidedly less bullish than earlier in the year. What do you make of that?
David Saitowitz: What I noticed from prior conferences was a change in tone, as you indicated. For the first time in multiple conferences, I had specific company questions, both on companies we own and companies we don’t own, which was notable. There was also a sense of “what’s coming next?” and “what industries are you worried about?”
CF: What did you answer? What is the credit environment like?
DS: It’s bifurcated. If you look at the vast majority of the market, we’re still seeing repricings — deals come to market and tighten in with less OID than they originally offered, or spreads are being tightened from initial price talk.
Particularly around weaker credit stories, there is less of a bid in the market for those types of names. If there’s any sort of hair on something, it does seem to trade soft. That has implications for existing names, as well as names you might want to buy in the secondary market.
We’re focused on keeping the strategy relatively vanilla
David Saitowitz
Head of US liquid credit
ICG
CF: People are concerned about credit. What kind of industries or credits are you avoiding?
DS: CLOs are diversified, offering broad exposure. We tend to avoid consumer/retail names. We are usually underweight there unless we see particularly high-quality opportunities. We’re selective with industrials and are cautious on companies we feel can be impacted by more than just industry exposure issues — for example, potential AI or tariff developments.
CF: Some of the companies that might be impacted by AI have sold off. Is this going to be a bigger trend going forward?
DS: There will be continual conversations in every IC [investment committee] — questions about AI are going to be asked. Our analysts make sure we are thinking through that aspect carefully. This technology is relatively new, and we’re all trying to wrap our heads around it. We take these things seriously and focus on understanding the business and where the potential weaknesses could be.
CF: Do you use AI in any way?
DS: We use AI in a couple of different ways. One, ICG does have an internal AI model, and we’ve brought in outside consultants to help us think through how to apply AI specifically to help with documentation creation.
We’ve written thousands of investment memos over the years, and we’re exploring training AI to assist with memos in a way that saves the analyst time. We’re thinking about it more as an opportunity to allow analysts to spend more time speaking to management teams, sponsors and industry experts to better understand how something trades, and then be more of an editor of the document. The goal is to get the AI to be that first pass at aggregating information.
CF: You took over the CLO helm at ICG in January 2024. What sort of philosophy have you implemented as the new leader?
DS: We had a nice business to start, and realised that in the CLO business over time scale matters. I came on to grow the overall liquid business. Our big focus is on CLOs — that’s the lion’s share of our assets. Our goal is to scale the business without having a sprawl of assets. We aim to keep credits to less than 40 per analyst, considering larger capital structures rather than a larger volume of smaller deals. Over time, that means migrating to billion dollar term loans and less of the USD 400m term loans.
The market has also become more challenging from a lender-on-lender violence perspective, so we construct portfolios that are relatively conservative, which will likely have fewer touch points to the LME part of the market. It’s normally names that are trading poorly or are relatively risky that end up in those situations, so we’re focused on keeping the strategy relatively vanilla. The biggest compliment to me would be: “We looked at your portfolio, recognised every name in there and understand exactly what you’re trying to do.”
