CLO Investor of the Year — Junior/Mezz — Ardesia (ISP Group)
Financial services boutique ISP Group launched its debut European CLO Opportunity Fund during the early spring market turmoil last year. Since then the Ardesia fund has proven its flexibility, recycling risk as the markets moved through panic, recovery and stability modes to deliver a 40%-plus return.
It’s taken a firm footing to grow in years to come and is our CLO Investor of the Year in the junior/mezz category.
Chaired by CLO market veteran Roy Tal, Switzerland-based ISP Group specialises in structured credit, fixed income and structured products, offering services from paying agent to wealth management for private clients, corporates and financial institutions. And while it has two decades’ experience managing CLO portfolios for private clients, its planned launch of Ardesia in spring 2020 marked its entry into the fund management space. But then the pandemic hit.
As a result, Ron Zeltzer, who has been with the firm since 2007, and Simon Gold, the former Bank of America CLO trading desk head who joined in 2020 to co-manage Ardesia, had a decision to make. Should they launch in the middle of a market crisis and accept that investors would be wary of backing a new fund at that time, or delay and risk missing out on a dislocated market with a cheap entry point?
“It was a dilemma,” says Zeltzer. “We started with €20m of soft commitments pre-Covid, but then as the lockdowns came in that shrank to €5m, including our money. It’s tough to convince people in the middle of a pandemic but we couldn’t miss the boat.”
Of course, the CLO opportunities mandate turned out to be a winner. Ardesia – with Tal, Zeltzer and Gold all, somewhat unusually, coming from trading backgrounds – didn’t just ride the market rally back up, but turned over the risk in the initial portfolio 150% as they moved through the cycle from double-B tranches through single-Bs and into equity. The fund returned 41.64% to investors in its first 12 months.
The firm recognizes that it owes a big part of its success to its counterparties – which it considers as partners.
“Although the fund size is relatively small for the European CLO market we have received the same level of access as a much larger fund and enjoy a very active dialogue with our counterparties as a regular market participant,” says Zeltzer.
For Gold, those relationships, built on ISP Group’s track record in the business, were one of the reasons he joined ISP. “It already had all of the infrastructure and lines in place – all of the pieces except asset management for CLOs – and that’s a big part of the battle,” he says.
Launching during a global pandemic might also have made day-to-day decisions more difficult, with Zeltzer based in Zurich and Gold in London. But while the pair eschew the trend among some of their younger colleagues in the industry to spend all day with an open video connection, they certainly work closely together. “I know everything about Simon,” quips Zeltzer. “Exactly what he puts on his salad and what type of chocolate he orders.”
The dynamic between the co-managers has proved itself. “Every trade idea goes through two minds that don’t always agree and that means that every investment decision is twice as good,” says Philip Krausz, who joined the team last year to support trading and analysis.
“It’s something that been easy to manage because we’ve both been in the market for 20 years and known each for a long time as counterparties,” says Gold. “We’ve had to change our approach to risk taking multiple times over the course of the year – from being in the middle of a crisis, to seeing the path out of the crisis, to the market stabilising – and because we’re a small team we can be very reactive and responsive.”
The high-velocity trading style means that the size of the opportunity with Ardesia is limited by its ability to move quickly through credit cycles, so Zeltzer says that it will probably close it to new investors when it reaches round the €70m mark. Further funds will likely follow offering different strategies that are more scaleable.
The CLO market has a solid platform for growth, and for opportunities in the coming years. Gold and Zeltzer point to the long-term cheapness double-B tranches, and, in Europe, no history of defaults. “As we see the market institutionalise and the triple-A buyer base expand I think we’ll continue to see the market grow,” says Gold.