Neuberger Berman readies CLO mezz fund
Neuberger Berman is preparing a CLO fund with a focus on mezzanine debt tranches. The private equity firm will pitch the UCITS fund to sophisticated investors and has already secured $77m of seed money.
The fund manager, with $132bn of fixed income assets under management, including $43bn of non-investment grade and structured credit products, aims to invest in US and European CLOs as well as high yield debt, giving its clients a short duration investment with the potential to generate attractive risk-adjusted returns relative to similarly rated corporate debt.
Senior portfolio managers Pim van Schie, Joseph Lynch and Stephen Casey will take charge of the fund.
“CLO debt can offer economic and fundamental advantages over other asset classes and is typically issued with significant credit enhancement to absorb credit losses in the underlying loan portfolios. Neuberger Berman’s combined strengths of fundamental credit research, CLO structuring and legal expertise offers a unique position to seek to maximise this investment opportunity” said van Schie.
Strong supply of CLOs, from new issue deals as well as refinancing and reset activity, has contributed to spread widening across the capital structure this year. Year-to-date issuance volumes of $181bn in US deals and €32.3bn of European paper are on track to beat 2017 figures, according to Bank of America Merrill Lynch.
And better spreads have lured fund managers to enhance their fund offering to investors. Frankfurt-based Union Investment also recently launched a new fund.
BAML data shows that double-B rated tranches have widened by around 60bp and 65bp for euro and US CLOs, respectively, since the start of the year.
Dik van Lomwel, head of EMEA and Latin America at Neuberger Berman, added: “We have seen significant interest from clients who are comfortable with non-investment grade credit and are looking to capture the additional yield and fundamental credit enhancement offered by CLO debt. We are pleased to be able to extend our offering with this CLO UCITS fund designed for sophisticated investors.”
Neuberger Berman is also a CLO manager, having issued 28 CLOs to date.
Still, the firm’s 2017 annual report strikes a cautionary note on the risks of the leveraged loan asset class.
“While it may seem like senior floating rate loans are a no brainer in a rising rate environment, there are signs that the senior loan market may prove a victim of its own success as the business cycle winds down," it said.