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Michelle D'Souza

The Central Bank of Ireland has confirmed that a UCITS fund domiciled in Ireland may now invest 100% of its NAV in CLOs, according to 9fin sources. At least 80% of the total CLO investment must be to the triple-A tranche, with the remainder being invested in investment grade.

These funds however cannot be marketed to retail investors.


Tara O’Reilly, partner at Arthur Cox, says the development, announced on 30 October, is the end result of a lot of interaction with the Central Bank to facilitate its detailed review of CLOs an asset class for UCITS funds.

“The market has been in an interim phase where initially the bank's risk tolerance allowed them to move the dial from 10% to 40% CLO exposure earlier this year, but the reality is that a fund that only has 40% CLO exposure is not as attractive,” Dublin-based O’Reilly said.

“We are certainly seeing a very high interest in creating funds that have full exposure to CLOs,” she adds.

There have been no CLO fund launches yet, as managers must file a submission for authorisation first, but O’Reilly anticipates these types of vehicles could be making their way onto the market “as early in the new year.”

While they have got comfortable with CLOs as an asset class, this is not for a fund that is targeting retail investors and they are looking for a minimum investment level of 100,000 particularly for ETFs.

O’Reilly says she doesn’t anticipate, ahead of the eligible assets review and outside of the retail investment strategy, that we would see a further, independent move from the Central Bank to allow retail investors to access CLO ETFs. These reviews are expected to come out in Q1 next year.

Aiden Small, partner at Arthur Cox, says the development could help diversity the European CLO triple-A investor base.

“The holy grail in Europe would be for retail investors to have access to loan or CLO products. Does this do it? No. But it does expand the potential universe of European CLO triple-A Investors and potentially makes US CLOs which are European risk retention compliant more accessible,” Small said. 

The move from the Central Bank of Ireland also allows the jurisdiction to be on a more even playing field, given other jurisdictions already have a greater capacity to invest in CLOs.

Fair Oak’s CLO ETF, for example, recently launched in Luxembourg and was the first Luxembourg-based CLO-only vehicle to be approved (though this was effectively a long-standing grandfather fund).

“We certainly found that managers who are looking at this were anxious to be in Ireland,” said O’Reilly. “The Central Bank has moved on this and now we can facilitate that product development here.”

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Irish regulators give green light for 100% CLO exposure in UCITS

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