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March 2022 | Issue 243

US managers eye growth potential in European CLOs

Sayed Kadiri headshot
Sayed Kadiri
The legion of European CLO managers is set to grow this year, with US issuers harbouring ambitions to become global players in the CLO business.
In February, Creditflux reported that Nuveen — a US CLO manager since 2005 — is looking to hire a portfolio manager and analysts in London with a view to pricing its first European CLO this year. The company, whose US CLO business is based in San Francisco, is backed by TIAA.
Fortress Group, which has $11.27 billion of US CLOs under management across broadly syndicated loan and middle market deals, is also reported to be eyeing its first European CLO.
Crucially, both firms have retained US CLO equity in the past. This paves the way for them to do something similar in Europe, and create risk retention compliant CLOs, as dictated by rules on the continent.
US CLO issuers are driven by a desire to diversify, according to Metlife Investment Management director Angela Best, and they view adding a European business to be an effective way of growing assets under management.
“European CLOs represent only 18% of global issuance”
Angela Best, Director | Metlife Investment Management
“The US is much more competitive in terms of the number of issuers, so Europe offers a lot of potential for growth,” says New York-based Best.
Best invests in CLO debt across US and European deals, and points out there are big differences across the markets. “Liquidity is much more expensive in Europe, portfolios are less diverse and European CLOs represent only 18% of global issuance.”
Best says that although European CLO mezz can provide higher yields versus US equivalent bonds, she prefers US senior and upper mezzanine CLO paper at the moment because of the combination of carry and the ability to scale these trades in the primary market. There has been $12.56 billion of new US CLO issuance this year, compared to $4.87 billion in Europe.
Creditflux data shows that 115 US CLO managers have issued at least one CLO since 2018, while in Europe the manager base over that timeframe stands at 60. Last year there was €38.5 billion of new CLO issuance in Europe across 49 managers.
Over the past four years there have been 23 debut European CLO managers. 13 of these have been US CLO managers crossing into Europe. But of the 10 most recent debutants, six have been European: Capital Four, BlueBay, AlbaCore, Bridgepoint, Fidelity International and, most recently, Acer Tree.
Kansas-headquartered Palmer Square Capital Management shows perhaps the best example of growth in Europe. The firm, a US CLO issuer since 2013, priced its first European CLO in August 2020 and has since racked up eight European CLOs and grown AUM to around €2.6 billion as of Q4 2021.
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Global credit funds & CLO's
March 2022 | Issue 243
Published in London & New York.
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