Collateralised loan obligation funds, the much maligned corporate debt funds which vanished after the financial crisis, cemented their re-emergence today with the proposed listing of a new fund on London’s stock market – the first CLO fund listed in London since the financial crisis.
Fair Oaks Income Fund, the brainchild of former executives from US alternative investment managers Apollo Global Management and Blackstone’s GSO Capital Partners, is raising $200m to buy second hand corporate loans.
The fund is something of a bellwether for the sector’s sudden revival and comes at an opportune time for CLO funds.
Data disclosed today by Carador Income Fund – a fund run by GSO Capital – revealed that last month was the second highest month for US CLO primary issuance in history. March also appears the top ten, as this table shows, putting 2014 on track to be the best year for US CLO issuance in history, if it can outstrip the levels of supply seen in 2006.
Meanwhile the picture in Europe is just as positive, with €4.1bn of primary CLO issuance completed as of 12 May – more than a four fold increase on the €930m issued in the same period last year.
Eight of the nine deals completed in Europe this year have also been by different managers, demonstrating the diversity of managers leading a stampede into the CLO space.
Over in the US, CLO funds have received a warm reception from retail investors keen to tap into the higher yields on offer from the more complex debt products. The Fair Oak fund offers an annual total yield of between 12 and 14 per cent – more than double what an investor could get from a typical FTSE tracker.
With funds starting to list in London again and more and more CLOs coming to market, we bet it won’t be long before the record monthly CLO issuance is breached.