CLO managers tap captive capital for ‘uneconomical’ deals

Funds raised to comply with overturned risk-retention rule underpin 80% of new deals

dollar notes in a padlock

Issuers of collateralised loans obligations (CLOs) have become almost completely reliant on long-term capital – raised in the mid-2010s to comply with a now defunct Dodd-Frank Act rule – to print new deals.

“It’s the longest period of time that I can recall where you’ve had third-party investors really step back from participating in the equity,” says Dagmara Michalczuk, a portfolio manager at Tetragon Credit Partners, which invests in CLO debt and equity.

This is because the CLO arbitrage is

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