CLO funds rev up, as Carlyle launches two more
The Carlyle Group LP (Nasdaq: CG) has closed two collateralized loan obligation (CLO) funds, one in the U.S. at about $613 million and the second one in Europe, valued at around $547 million (€464 million). Proving their ability to deliver favorable returns and minimal defaults even through the recession, CLO funds have resurfaced as lucrative investment vehicles for the private debt world.
A CLO fund is a security backed by a pool of debt, often times low-rated corporate loans, where payments from middle-market business loans are collected and repaid to limited partners. The CLO structure had proven to be beneficial for fund managers until the financial crisis, when it got something of a bad reputation, due to guilt by association with mortgage-backed securities. Since 2012, CLOs have been making a comeback, in part due to their ability to provide a handful of varying risk-to-reward profiles. CLOs, as opposed to unitranche investment vehicles, also allow firms to access a broader network of potential limited partners, some of whom would not be able to invest directly in middle-market loans.
The resurgence of CLOs across the middle market is leading other firms to raise funds. Antares Capital raised its first CLO fund in May with nearly $2.1 billion in commitments; Madison Capital Funding LLC, the directing lending arm of New York Life Insurance Co., closed a $325 fund; and Trinitas Capital Management LLC closed the firm’s sixth CLO.