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News Investor’s Corner
‘We like managers that are honest about the risks’
Creditflux: What’s the most important criteria right now when you’re selecting investments?
Elena Rinaldi: The focus at the moment, and throughout this year, is due diligence and stress testing — so a focus on credit quality. We are seeing companies doing OK, but also a potential slowdown in the global economy is expected, so there will be divergence in performance across CLOs.
We are focused on tier-1 and tier-2s, so best-in-class managers in Europe and the US. For the US, we see more divergence because there is more tiering and lower overlaps in CLO pools. That warrants even more caution whenever you select a manager and a transaction.
CF: Do you see any possibility in the near term of opportunities down the credit quality ladder?
ER: I don’t think that route is paying you enough at the moment. In Europe especially, although we are seeing CLOs pricing risk more appropriately than ABS or traditional fixed income, for example, the risk premium is just not enough. If you look at the difference between a tier-1 and a tier-4 in Europe, it’s not even 100 basis points at the double B level.
You see some deals with names in the 20s or the 30s carried at par
Elena Rinaldi
Portfolio manager
TwentyFour Asset Management
CF: When you talk to your managers, what is it you most want to hear from them? So, ultimately, managers that have a conservative view are what we like. Not just a conservative strategy, but also one that can take advantage of potential dislocations. It’s a mix of being conservative, being very focused on credit selection, but at the same time, being active if there are opportunities.
Some of these deals are being printed at levels that don’t make any sense to me.
ER: We like managers that are honest about the risks they are seeing in the market, and we like to see managers whose view aligns with ours in the way they look at the world, the economy and credit markets.
CF: Do you like the deals you’re seeing in today’s pipeline?
ER: In terms of deals that are coming to market, what we don’t like and are seeing is that some resets are not clean enough. The manager — or more often the equity in the CLO — is not willing to lose some par and remove weaker credits. So you see some deals with names in the 20s or the 30s carried at par, and not even taking a haircut.
