CLO Manager Consolidation Not Slowing Down

As we reported earlier this year, the landscape for firms specializing in managing Collateralized Loan Obligations (“CLO”) and related institutional credit portfolios continues to rapidly consolidate. 

This past week brought two significant announcements; first with Los Angeles-based Ares Management LLC announcing that they had acquired Indicus Advisors and with it more than US$2Billion in CLO’s and other credit programs.   This is the third acquisition by Ares in 2011.   In April they had agreed to buy about $2.5 billion in loans from Nomura Holdings Inc. and in March it said it would buy a European CLO from Octagon Credit Investors LLC.

The Ares announcement was followed by news later in the week that Carlyle Group had acquired a $500mm CLO from Well Fargo Bank’s Foothill Group affiliate.  This is a transaction that had been rumored to be under negotiation for several months and is just the latest in a string of consolidation plays in the CDO and CLO markets by Carlyle over the past two years.

According to Barclay’s Plc, more than US$30 billion of CLO management contracts have been transferred since the start of 2010.  Most argue that this continued shakeout is being driven by a combination of market forces including, pressure on the performance of existing programs, strong competition for new loan product in a tight credit market and the resulting failure of some of CLO managers to be able to reach “critical mass”.  These programs can be both highly sophisticated and expensive to manage.  Managers with anything less than US$3-4Billion under management will likely continue to consider their options.

From an investor perspective, we view this consolidation as a positive trend, as it will force out managers with anything less than a high level of commitment to superior results.

About markferraris
Managing Principal Orchard Street Partners LLC

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