By Joanne McEnteggart, Global Head of Debt, Capital Markets and Corporates
Collateralised loan obligations (CLOs) are a vital part of the structured credit market, offering attractive opportunities for investors and managers alike. However, managing a CLO is far from simple. CLO managers play an active role within the CLO ecosystem, continuously buying and selling loans within the portfolio, optimising returns, and maintaining regulatory compliance. Unlike other types of securities, CLOs are actively managed, allowing CLO managers to respond quickly to market changes to optimise performance.
Today’s CLO managers operate in a dynamic market where volatility, regulation and investor expectations demand agility and precision. From maintaining arbitrage and handling operational complexity to meeting compliance requirements and managing multiple stakeholder expectations, CLO managers face a unique set of challenges in an increasingly competitive and regulated environment.
In this article, we explore five of the most pressing challenges for CLO managers today and how our expertise and technology-driven solutions can help overcome them.
#1: Maximising the arbitrage
Without arbitrage, CLOs cease to exist. To maximise the arbitrage CLOs must be attractive across the capital stack and operate efficiently.
Our solution: By leveraging our capabilities and outsourcing middle- and back-office functions, CLO managers can streamline costs and remain focused on core investment decisions. This operational efficiency helps preserve margins and maximise arbitrage opportunities.
#2: Complexity
Day-to-day CLO management can be inherently complex. Ongoing operations involve asset tracking, accruals, notices, pay-downs and subsequent reconciliations and settlement. On top of this, modelling interest and principal waterfall payments across the capital stack can be challenging. Manual processes also increase the risk of errors and inefficiencies, which can lead to compliance breaches or investor dissatisfaction.
Our solution: Through our strategic partnership with Allvue, we leverage a platform specifically tailored for the complexity of CLOs. This includes features such as loan trading (including integration with execution venues and settlement systems), modelling interest and principal waterfall payments, and a robust CLO compliance calculation engine, ensuring accuracy and efficiency at every stage.
#3: Stakeholder management
CLOs involve multiple stakeholders – banks, investors, borrowers, trustees and rating agencies – each with different priorities and reporting requirements. Coordinating these interactions can be time-consuming and resource-intensive, especially when deadlines are tight.
Our solution: Our comprehensive service spans the entire CLO lifecycle, from warehousing through to amortisation. We provide dedicated project and stakeholder management, ensuring smooth communication and timely delivery of information.
#4: Risk management
Maintaining compliance with concentration limits and regulatory obligations is non-negotiable for CLO managers. This requires continuous monitoring of liquidity, cash positions and exposure across sectors, geographies and credit ratings, while also forecasting future scenarios. Failure to meet these compliance requirements can result in breaches that impact investor confidence and performance.
Our solution: Our experienced loan administration team can assist in cash flow modeling and forecasting positions, tracking loan collateral and cash positions, loan settlements, CLO reporting and waterfall calculations. Allvue can be utilised to assist with future modeling of potential investments.
#5: Resourcing
Operating models are being re-evaluated to meet financial challenges, increase operational efficiencies, achieve the required talent resourcing and drive investment in technology and innovation.
Our solution: We specialise in delivering outsourced solutions that prioritise cost efficiency, safeguarding margins and mitigating risks for our clients.
How we can support your growth
Our comprehensive CLO support services are designed to maximise your investment potential through expert guidance and customised, tech-powered solutions.
We leverage extensive industry experience and advanced technology solutions to handle all aspects of CLO management, including waterfall calculations, collateral management, loan settlements and trustee reconciliation. Our expertise extends to managing warehouse and special purpose vehicle (SPV) structures, ensuring efficient operations that help you achieve your investment objectives.
Through our global CLO platform, we deliver real-time data access and specialised support for CLO managers across the United States, London and Dublin. Our multi-time zone operations ensure optimal efficiency and responsiveness whenever you need it.
Ready to transform your CLO operations? Our team of industry experts, backed by best-in-class technology, delivers the precision and efficiency the market demands. Contact us today to explore how we can accelerate your success.
