CLO Performance

45 Pages Posted: 15 Aug 2020

See all articles by Larry Cordell

Larry Cordell

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Michael R. Roberts

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)

Michael Schwert

University of Pennsylvania - The Wharton School

Date Written: July 8, 2020

Abstract

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

Cordell, Larry and Roberts, Michael R. and Schwert, Michael, CLO Performance (July 8, 2020). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3652124 or http://dx.doi.org/10.2139/ssrn.3652124

Larry Cordell

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Michael R. Roberts

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )

3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)

HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/

Michael Schwert (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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