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LGT Capital Partners is eyeing a Q2 launch for its debut European CLO with 9fin reporting the manager mandated Deutsche Bank and registered its debut vehicle, Legato CLO I.

As macro conditions shift and investor preferences evolve, LGT’s Thomas Kyriakoudis and Ilina Chen share insights with 9fin into how their new CLO platform is shaped by past experience, a focus on regional resilience, and long-term structural capital. They also discuss market dynamics, manager differentiation, evergreen fund design, and the balance between private credit and broadly syndicated loans.

1. Given your prior experience launching a CLO business, what key lessons are you applying as you build this new platform — and how do you expect this iteration to differ?

Kyriakoudis: Every platform launch gives you a chance to look at the macro conditions. We see an environment where rates are likely to remain at least non-zero over the next five years, alongside the backdrop of tariffs and broader geopolitical shifts. In the medium term, this suggests a pullback from unconstrained globalisation and a shift toward more regionally focused business models.

CLOs are particularly well-suited to this kind of environment, as they allow you to structure your portfolio around medium-term views. As such, we aim to align our portfolio with companies that can succeed regionally without relying heavily on global trade. We see a great opportunity to build a new clean portfolio — one that reflects the higher-rate environment and the reality of global trade shifts.

2. How are you positioning your platform to stand out in what’s becoming a crowded field of new CLO managers?

Chen: Three factors that set us apart: deep expertise in this asset class, both on the liability side and the asset side, strong relationships with sponsors, and long-term capital backing.

On the expertise side, Thomas [Kyriakoudis] has been investing in this asset class since before the global financial crisis, and helped set up the Permira CLO platform. I joined Sculptor’s European CLO business at inception, and worked as a credit analyst, then head of research and later deputy PM. We have both built and grown CLO businesses. On the liability front, the team manages a sizable book investing in CLO tranches – equity and debt – across third-party managers. We understand the intricacies of the product and have experience both managing and investing in it.

Regarding relationships, LGT Capital Partners is one of the largest LP investors in PE sponsors, investing up to $10 billion a year. The firm has long-standing relationships with many leading PE sponsors in the leveraged loan space. That gives us strong insight into their management style and investment philosophy across sectors and regions, which we can leverage as we build our platform and portfolios.

Last but not least, we have sufficient equity capital to grow into a significant platform over the next few years. One of the capital pools LGT Capital Partners manages is our $20 billion endowment – capital managed on behalf of both the Princely Family of Liechtenstein, our employees and external investors. The LGT Endowment has made a strategic and long-term allocation to CLOs, which is quite distinctive.

3. How do you see investor appetite evolving — are allocators becoming more discerning in manager selection?

Kyriakoudis: Over nearly two decades of investing in and building CLOs, I have learned that long-term performance comes from having the right setup, clear thinking, and well-considered strategies — not from reacting to short-term market moves.

Investors have often been smart and sophisticated, and over time they have gained more data. Today, they can look at 20 years of CLO performance — what works and what doesn’t.

4. The primary loan market has slowed down and credit dispersion is increasing — how are you navigating current market conditions in terms of CLO ramp and portfolio selection?

Chen: The leveraged loan market stopped for about four to six weeks, but since May we have seen a significant number of deals starting to launch. The secondary loan market has recovered strongly alongside other markets, and a number of previously postponed deals are now returning to the market.

We expect good primary volume in the coming weeks and months. The deals launching now are also more balanced – in terms of leverage, structure and yields, which are more attractive.

There are still macro uncertainties — politically and economically — and even with the recent US–China agreement, risks remain. New primary deals seem to reflect that.

In the short term we don’t expect to return to levels at the beginning of this year where B2s were pricing at E+300/325bps — everyone sees that those levels don’t work from CLO maths perspective. Now B2s are more like E+375/400bps, which is more in line with last year pre-repricing waves. Very strong B2s might still reach E+350bps, but that’s rare.

5. How do you assess the evolving dynamics between private credit and the leveraged loan market?

Kyriakoudis: We have a substantial private credit business, so we have insight into that market as well. The way I see it, these two markets have grown up together, and sponsors are now looking for the most appropriate financing for a given deal.

Particularly for larger deals, sponsors may consider both markets and also the high-yield bond market. It feels more balanced now. There is plenty of capital, and sponsors decide where it makes the most sense based on the specific deal.

There are pros and cons to each market, but they can co-exist. Sometimes private credit is more attractive, sometimes BSLs or even high yield.

Our credit strategy is multi-faceted, with the flexibility to invest across these markets and pivot over time toward areas offering more attractive returns.

6. As you just mentioned, you have an established CLO investment business in an evergreen format — can you share your thoughts on the structure and what investor appetite looks like?

Kyriakoudis: It is a question of return, liquidity and volatility. Different asset classes play different roles in a balanced portfolio.

While we may emphasize one area more at times, we wouldn’t want to overweight any single exposure. Each brings its own value.

For example, direct loans tend to have higher returns, but they are illiquid. That’s the trade-off. NAV loans are attractive from a loan-to-value and risk perspective, but they are typically all PIK – no cash pay. You wouldn’t build an entire portfolio out of those.

So it is about balancing volatility, liquidity, return and cash. In our $3.2 billion NAV portfolio, about 15% is in investment-grade ABS, including CLOs, and another circa 20% in sub-investment-grade CLOs, from BBs to equity.

Now looking at the access structures, we believe evergreen funds play a vital role in the private credit market. While closed-end funds remain appropriate for certain strategies, we see strong investor interest in vehicles that allow for rapid deployment and avoid the steep J-curve often associated with traditional structures. Many investors also value having some degree of back-end liquidity. These features resonate with our clients, and we have seen strong inflows into our evergreen fund as a result.

7. What are the challenges when building portfolios in evergreen format?

Kyriakoudis: To build a successful evergreen portfolio, you need to be quite granular — no large exposures to individual deals.

I personally believe a multi-strategy approach is best, as it allows deployment across different market environments. If you are focused on a single strategy, and yields compress, it becomes hard to keep deploying.

Liquidity is also key. Our 15% allocation to investment-grade ABS and CLOs helps manage both inflows and outflows.

And as mentioned, a differentiator for us is the backing of a large endowment, which provides fundamental support and significant capital.

8. There’s a lot of global momentum in CLOs — would you eventually look to bring this platform to the US, and what would create the right conditions to do that?

Kyriakoudis: We do not have immediate plans, but we are monitoring the global environment and will evaluate opportunities as they arise.

9. What’s something people would be surprised to learn about you — maybe a hidden talent, a surprising hobby, or an unexpected passion?

Chen: I would love to sail across the world — though I think I will wait until my kids are a bit older.

Kyriakoudis: I also have a sideline in backing independent films, and actually have a couple of credits on IMDB.

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