45 Pages Posted: 15 Aug 2020
Date Written: July 8, 2020
We present evidence on the performance of collateralized loan obligations (CLOs). CLO debt tranches have consistently outperformed their benchmarks over the last twenty years, though by a small amount. CLO equity tranches issued before the 2008 crisis outperformed their benchmarks by a wide margin -- a consequence of the "term leverage'' in CLO structures that amplified the effects of the post-crisis economic recovery. Equity has under-performed its benchmarks since the crisis. Cross-sectional variation in CLO equity performance is driven to a large extent by persistent differences across CLO managers. Top-performing managers select loans with higher coupon rates and generate more value by trading in the secondary market.
Keywords: collateralized loan obligations, leveraged loans, securitization, asset management
JEL Classification: G23, G11
Suggested Citation: Suggested Citation