How to judge manager performance
Given the range of institutions active in CLOs, there is remarkably limited tiering between names.
At the triple-A level the bid is distorted by growing volumes of negative basis trading, but at the double-B level there is some differentiation. Prudential M&G’s fourth Leopard CLO in April this year set a new tight at the triple-A level: 22 basis points for a 7.6 year WAL that observers attribute to the strength of the Pru M&G name. But Leopard only came 5bp inside the recent Mercator CLO for first time manager New Amsterdam Capital at the triple-A level. However, the double-B minus tranches reveal a stark difference: 425bp for Leopard, 500bp for Mercator.
Given the struggle for allocation, how should CLO managers be judged? With the exploding demand for skilled managers, those with a good track record in this market have high prices on their heads. And the consequences for small firms can be serious. Last year, Eiger Capital had to abandon its second CLO – Orion 2 – when one of the team (David Wilson) left to join rival Elgin Capital. Elgin Capital was in the market in mid-May with its debut CLO.