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Global credit funds & CLO's

July 2026 • Issue 288

Published in London & New York 10 Queen Street Place, London 1345 Avenue of the Americas, New York

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News Investor’s Corner

‘There’s a difference between perceived and actual safety’

by Lisa Lee & Kathryn Gaw

Creditflux: A lot of CLO managers have taken a conservative approach lately. Why is that?

Soo Kim: Deploying a conservative strategy is easier said than done. You saw in the first quarter that some lower-spread or more conservative portfolios had larger price moves than some higher-risk or higher-spread portfolios. We want to be conservative, but there’s a difference between perceived safety and actual safety.

The problem is that some loans are perceived as safe, but they may present greater risks than lenders currently appreciate. Some of the double B credits — highly rated companies — are struggling. You see it in the numbers — the trading levels, enterprise valuations, etc.

Deploying a conservative strategy is easier said than done

Soo Kim

Head of liquid credit Anchorage Capital Advisors

CF: What is the risk of taking a more conservative stance?

SK: Most firms say they underwrite, but we think the reality is that not everyone has the human capital or the resources to do so, and not everyone underwrites and actively manages.

Curtis Hardwick: Conservative styles are currently in favour, but as more managers adopt that posture, it becomes harder to generate differentiated performance. We’ve become more conservative, too. For a long time, we had one of the highest WARFs among CLO managers, and that style worked well for us pre-2021, when there was excess spread available in B3-rated loans. The intensification of LMEs in 2022-23 changed market dynamics. With lower recoveries and crystallisation of losses via discount capture, we’ve shifted our portfolio positioning.

The LBO pipeline has been six months away for three years

Curtis Hardwick

Structured credit specialist Anchorage Capital Advisors

CF: What is different about your portfolio positioning today?

CH: If you look at our portfolios now, versus a few years ago, it’s still the same underlying philosophy of trying to generate the best risk-adjusted returns and actively trading the book. But the way that we express that through our portfolio positioning has evolved along with the market, and we are now managing less concentrated and lower WARF portfolios than before.

CF: How do you feel about the uptick in LME activity?

SK: We try not to get into these situations in the first place. But some deals do require LMEs, and we have significant experience analysing and structuring LMEs, reflecting Anchorage’s track record in distressed investing.

We are not afraid to admit when we’ve made a mistake and then focus on mitigating risk based on updated facts and circumstances. Again, it comes back to preserving value.

CF: Is it time for the CLO market to become more transparent?

SK: We would welcome the market moving in a direction where there’s more information available for lenders. We believe some of these software loans that are coming due to refinance may be decent opportunities, but we believe lenders need more information and commitment to continued disclosure from sponsors and borrowers.

CF: When do you expect the LBO market to pick up?

CH: The LBO pipeline has been six months away for three years. Unfortunately, it keeps finding itself back at square one.

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