Investors are increasingly turning to the European collateralised loan obligation (CLO) market, amid forecasts that the wider securitisation space in the continent could grow to €1.2tn (£1bn) over the next five years.
For the past three to four years, the worldwide CLO market has expanded significantly, recovering from the reputational damage that hit collateralised vehicles following the global financial crisis, to reach an estimated $1.4tn (£1.1bn) globally last year.
While the US CLO market continues to dominate, attention is increasingly shifting towards Europe, where asset managers are launching new mandates and positioning themselves to capture fresh insurance capital.
According to the latest PitchBook data on monthly CLO issuance over the past five years, Europe has seen slower growth but still shows a clear upward trend. From 2020 to 2022, issuance was mostly below $3bn per month, rising to around $5bn to $10bn per month in 2024 and 2025.
Looking ahead, the overall European securitisation market, of which CLOs form a part, is expected to grow to €1.2tn over the next five years, up from around €550bn, according to research by Morgan Stanley.
Much of this growth in the European CLO market is expected to be driven by reform of EU securitisation regulation. Changes to the capital treatment are expected to boost insurance capital into the space “quite materially”, said Aza Teeuwen, co-head of asset-backed securities and partner at TwentyFour Asset Management.
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Changes to securitisation regulation, including amendments to Solvency II, are set to lower capital charges for insurers, particularly for senior tranches such as AAA CLOs.
Teeuwen added that Solvency II reforms are expected to come into force in January 2027, “but we are already seeing insurance companies asking about the asset class, the products, which makes me believe there is significant demand from insurance companies on that product”.
He noted that this is particularly significant given insurance remains a relatively small investor base for CLOs in Europe. Only a handful of French insurers are currently invested, whereas US insurers are far more active, accounting for around 20 per cent of the market. This suggests substantial potential for new capital inflows, said Teeuwen.
Meanwhile, Mehdi Kashani, head of structured credit at $11.4bn alternative asset manager Arini, said much of the current focus in European CLOs is concentrated in specific parts of the capital structure, particularly AAA tranches.
“I think that is where the market sees the most value, largely because they have lagged the broad credit market rally, and there are some more tailwinds in regard to regulatory changes, such as Solvency II in Jan 2027, which will bring insurers into play,” said Kashani.
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However, growth is not expected to come solely from banks and insurers. Other investors are also entering the market, according to Matthias Alt, partner and head of credit partners at Park Square Capital. The $19bn credit investor recently expanded its senior debt platform with the launch of a European CLO business.
“New investors, particularly US accounts, are now allocating to Europe, further deepening liquidity,” said Alt. “As such, European CLOs have continued to move from a niche European product to a global scalable credit allocation.”
Rob Reynolds, managing director and head of CLOs at Pemberton Asset Management, also highlighted the structural strengths of the vehicles for the growth. The European manager operates a €1.6bn platform and has recently expanded its team with the appointment of Jay Daryanani as managing director within the CLO business.
“A key strength of CLOs is that we are not marked to market. This means we are not subject to forced selling at any point in time,” said Reynolds. “The focus is on broadly syndicated loans, which are low volatility.”
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