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The huge number of US CLO managers coming to market this year, combined with corporate credit downgrades and the ensuing tail risks building in portfolios, means standing out from the crowd (for the right reasons) is all the more important.

Analysing CLO portfolio overlap is one of many factors investors use for risk assessment and investment decisions, especially when it comes to the riskier part of the cap stack.

“If you have a large CLO equity book, overlapping assets are very much in focus,” said one anchor CLO equity investor. But they caution that two managers with the exact same issuer overlap could yet end up with different outcomes. “You have to consider LME transactions, and some of the other changes in our market — the ability to differentiate isn’t just in picking collateral, but also in managing and rotating the book,” said the investor.

For this report, we look at the portfolio overlap, as per the latest US CLO trustee reports, between managers for deals closed in 2022 and 2023 (see the bottom of this article for methodology).

Our analysis found that over this period the average overlap is 38.8%.

This is largely in-line with what we’ve seen with previous vintages, sources say, despite 2022-2023 period being an “interesting time to say the least” for CLO portfolio trading.

As another CLO equity investor pointed out: “We saw a lot of rotation in portfolios as interest coverage ratios and tail-risk was in full focus [during this period]. In addition to that, there has been huge amounts of refinancing and spread compression. CLOs that closed in 2022 should therefore look very different today.”

An environment conducive to high portfolio trading rates (typically, when volatility is absent) gives CLO managers a chance to differentiate themselves to a greater extent and demonstrate their management style. In such environments you’d expect lower portfolio overlap. However, as another CLO equity investor points out, weak loan new issuance volumes has likely negated the effects of differentiation that accrue through trading.

There is also more incentive for managers to be more diverse, and this means a greater correlation with the market.

Voya Alternative Asset Management has the largest overlap with the market on average at 49.9%. Voya has four deals in the dataset totalling $1.7bn with 450 debt issuers. Click here for a full graphic highlighting overlap among US CLO issuers.

Voya’s portfolio has the largest exposure to Les Schwab ($15.4m) and Acrisure ($15.08m) — making up 0.92% and 0.90% of its portfolio, respectively.

Voya has the largest overlap with CIFC Asset Management at 65.8%. Acrisure and Ineos Group are the issuers with the largest overlap between the two managers.

But the largest overlap between two managers is between CIFC and Sound Point Capital Management at a whopping 69.35%.

Ineos is the largest common debt issuer between the two managers — CIFC has an exposure of $35.5m and Sound Point of $17.7m, for a combined $53.2m.

It is important to note that Sound Point has six CLOs in the dataset which includes two BlueMountain deals — BlueMountain CLO XXXIV and XXXV. Sound Point acquired BlueMountain in April 2023.

CIFC has 10 CLOs in the dataset with a total portfolio of $4.6bn and 600 debt issuers.

Source: 9fin, Moody’s Analytics. Please email here to request a copy.

At the other end of the spectrum, Fortress Investment Group has the lowest overlap with the market with just 22.3%. The manager has five CLOs in the dataset with a portfolio of $2.09 billion and 185 debt issuers.

Fortress has the largest overlap with MJX Asset Management at 36.2%.

Fortress has the largest exposure to Asurion with $41.4m of paper — which makes up 0.02% of the portfolio.

There are eight issuers that are unique to Fortress, in our dataset, which total $58.32m (or 0.03% of portfolio) — MedData ($14.82m), Shelf Drilling ($12.5m), Golden West ($7.9m), Legal Search ($6.8m), Odfjell Drilling ($6.1m), Emerald EMS ($5.2m), EveryStory Partners ($3.5m) and PetMate ($1.5m).

On average, CLO managers with a larger portfolio size tend to have larger overlap with the market (for obvious reasons).

But a CLO equity investor said that portfolio analysis between a larger and smaller manager is nuanced. “On the one hand you can say that the larger managers have to buy most of the assets out there and smaller managers are being more selective. But on the other side, smaller managers don’t get all the allocations and have to build portfolios with less liquid and higher spread names. So, it would have to be looked at case by case.”

The 25 largest managers in the dataset have an average overlap of 42.8% to the rest of the market. In this cohort, KKR Financial Advisors has the lowest overlap with the market at 37.5%, spanning a portfolio of $4.6bn. There are 340 debt issuer names in the portfolio.

Source: Moody’s Analytics, 9fin. Top 20 managers by average overlap with all other managers in dataset.

Some large managers have a low overlap with the market because they are not selling out of stressed names and continue to hold a lot of triple-Cs, said a CLO equity investor. “And we love that they’re keeping the value in the portfolio for equity and not succumbing to the pressure to sell stressed assets. We’re also seeing some larger managers with a lower diversity score. We like these too as they appear to buy loans that they want and are disciplined with it,” they add.

The 25 smallest managers in the dataset have an overlap of 34.3%. In this group, all managers have one CLO and Axa Investment Manager’s Allegro CLO XV has the largest overlap of 41.3% with the market.

The chart below indicates exposure of the largest CLO managers to the largest debt issuers in the dataset.

Ineos, comprising several Ineos entities under the Ineos Group umbrella, is the largest debt issuer. 89 managers across 366 US CLOs hold $1.3bn. To put this in perspective, there are 425 CLOs in total in the dataset.

Palmer Square Capital Management has the largest exposure to the issuer at $78.2m but Zais Group holds the largest exposure to Ineos as a percentage of its portfolio with $17.5m constituting 2.3% of its portfolio.

Other managers with high percentage of portfolio exposure to Ineos include Apex Credit Partners (2.23%), Invesco (2.14%) and MJX (2.07%)

Ares Management stands out due to the fact it does not hold any Ineos paper. The manager has 10 CLOs in the dataset amounting to $5.05bn.

Barings and Oak Hill Advisors are other notable large CLO managers in the dataset who don’t have exposure to Ineos. Out of 106 managers in the dataset, only 17 don’t hold any Ineos.

That said, Ares and Barings do have exposure to Ineos debt, but just not for 2022-2023 vintage CLOs that make up our dataset for this analysis. Oak Hill, on the other hand, has steered away from Ineos in all of its US CLOs, according to 9fin data.

TransDigm Group is the second most popular debt issuer amongst 2022-2023 US CLOs with a total exposure of $1.04bn. Its popularity is widespread as 96 managers (out of 106) in the dataset hold TransDigm paper.

Excludes deals with high triple-C buckets

CLOs still outstanding as of November 2024

Overlap is calculated on the basis of matching issuers (rather than individual issues) that appear within both manager’s portfolios as a % of combined portfolio .Data is taken from the latest available trustee reports as of November 2024. Managers that have acquired CLOs from other managers have been combined in the dataset. This includes Sound Point & BlueMountain, HPS and Park Avenue, Franklin Advisors and Putnam and Investcorp and Marble Point.

US CLO portfolio overlap — Standing out from the crowd

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