Within the credit universe, collateralised loan obligations (CLOs) have garnered increased attention lately by investors and the financial press. In part, the growing focus by the media reflects the significant role that the structures play as investors in the loan market: CLOs accounted for 71.4% of primary loan demand as at 31 December 2019, up from 50.0% in the 10 years earlier.¹
In turn, investors increasingly have taken notice of CLOs for the attractive investment advantages that they offer in today's evolving investment environment, which has been characterised by higher volatility and lower yields across global financial markets. Notwithstanding the increased attention, the complexity associated with CLO securitisation has meant that the structures remain poorly understood, as misconceptions related to their risk persist. Within asset-backed securities (ABS), CLOs are a niche area where products are slightly more bespoke and receive less attention from tradtional ABS investors. That lack of coverage can, however, create an alpha opportunity for managers with the right skill set and specialist expertise. At Eaton Vance, we have deep experience in this asset class as CLO managers for nearly 20 years and investors in third-party CLOs for 15 years. In our view, the CLO securitisation structure is durable not in spite of its complexity, but precisely because of it. In this paper, we explain the basics of CLO securitisation, securitisation's role as an anchor to stability and what the potential advantages of CLO investing include.
¹Source: S&P/LCD. As at 31 December 2019
Risks
Important Additional Information and Disclosures
Source of all data: Eaton Vance, Citibank Velocity, Macrobond, S&P/LCD, an offering of S&P Global Market Intelligence. Data as at 31 October 2020, unless otherwise specified.
This material is presented for informational and illustrative purposes only. This material should not be construed as investment advice, a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy; it has been prepared on the basis of publicly available information, internally developed data and other third-party sources believed to be reliable. However, no assurances are provided regarding the reliability of such information and Eaton Vance has not sought to independently verify information taken from public and third-party sources. Investment views, opinions, and/or analysis expressed constitute judgments as of the date of this material and are subject to change at any time without notice. Different views may be expressed based on different investment styles, objectives, opinions or philosophies.
This material may contain statements that are not historical facts, referred to as forward-looking statements. Future results may differ significantly from those stated in forward-looking statements, depending on factors such as changes in securities or financial markets or general economic conditions. This material is for the benefit of persons whom Eaton Vance reasonably believes it is permitted to communicate to and should not be forwarded to any other person without the consent of Eaton Vance. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It expresses no views as to the suitability of the investments described herein to the individual circumstances of any recipient or otherwise. It is the responsibility of every person reading this document to satisfy himself as to the full observance of the laws of any relevant country, including obtaining any governmental or other consent which may be required or observing any other formality which needs to be observed in that country. Unless otherwise stated, returns and market values contained herein are presented in US Dollars.
In the United Kingdom, this material is issued by Eaton Vance Management (International) Limited ("EVMI"), 125 Old Broad Street, London, EC2N 1AR, UK, and is authorised and regulated by the Financial Conduct Authority. EVMI markets the services of the following strategic affiliates: Parametric Portfolio Associates® LLC ("PPA") is an investment advisor registered with the SEC and is a majority owned subsidiary of EVC. Hexavest Inc. ("Hexavest") is an investment advisor based in Montreal, Canada and registered with the SEC in the United States, and has a strategic partnership with Eaton Vance, who owns 49% of the stock of Hexavest. Calvert Research and Management ("CRM") and Atlanta Capital Management Company, LLC ("Atlanta Capital") are investment advisors registered with the SEC and are wholly owned subsidiaries of EVM.
This material is issued by EVMI and is for Professional Clients/Accredited Investors only.
