An increase in European collateral loan obligation (CLO) issuance over the past 12 to 18 months looks set to continue, as first-time CLO managers prepare to enter the market.
Iryan Clunis, EMEA head of sales at alternative investments technology provider Allvue, cited several underlying reasons for the “drive toward more European issuance,” noting that the fundamentals of CLOs present an attractive relative value versus assets such as corporate bonds.
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“Given the global macroeconomic position, a lot of investors are looking for protection against interest rate risks, so a lot of the structures that have been on the market have floating rates,” Clunis said.
He identified other portfolio management-related benefits, such as diversification across industries, sectors and currencies.
In December 2024, analysis from Indefi revealed that annual European CLO issuances will double to be worth up to €75bn (£64.2bn) before 2030.
Clunis noted that, compared to the “more mature and established” North American market, the European CLO market is “complicated”, given the “many different sovereign nations in Europe, each with their own tax treaties”, which “adds a layer of complexity when you’re launching a European CLO”.
However, “forward thinking” managers from a technology perspective “are able to manage these complex asset classes efficiently, and come to market as efficiently as possible”, he said.
“There has definitely been a defined set of organisations that have the skillset or willingness to enter writing their own CLOs – the interesting thing is, it’s increasing,” he added.
“Given the fundamental reasons why people like to invest in CLOs, you’re starting to see a lot of managers opening up their own warehouses and price up these deals,” he said, adding that this meant there is a “strong pipeline of new deals”.
“I know from talking to clients in the industry that we will see more first-time CLO managers over the next 12-18 months,” he said.
Additionally, Clunis noted growing interest in CLO exchange-traded funds (ETFs), particularly from North American managers.
Towards the end of last year, new research by S&P Global Ratings found that the CLO ETF market had grown to a value of more than $19bn since its launch four years ago.
“We’ve seen that the CLO ETF market is reshaping investor engagement, so we’ve seen a marked increase in demand to access some of these floating rate products,” Clunis said.
He called it a “buoyant and growing” market, with “major players” having launched ETFs in this space.
