(Bloomberg) -- Europe's collateralized loan obligation market is set for a record year of issuance, and a flurry of new entrants are looking to get involved in the upturn.
Royal London Group and Macquarie Group are both in the early stages of setting up European CLO platforms, according to people familiar with the matter who aren't authorized to speak publicly.
Meanwhile, asset management firms Arcano Partners, DWS Group and financial services company CIC are preparing to launch their debut CLOs which will be backed by European leveraged loans, according to some of the people.
Spokespeople for Macquarie and DWS declined to comment. Royal London, Arcano, and CIC did not immediately respond to requests for comment.
There's been a resurgence of interest in CLOs, which repackage leveraged loans into bonds of varying risk and size. Gross issuance is on track for a record year in Europe, while year-to-date issuance in the market has already exceeded 2023's full-year volume, according to a recent report from Citi. The revival comes after banks stopped or pared back buying the safest and largest "AAA" tranches for much of the past two years.
"From a timing perspective, it makes sense," said Simon Gold, a senior CLO trader at Chenavari Investment Managers. "The market has good liquidity, allowing banks to easily place the risk due to high demand. All the deals are trading on top of each other, so new managers won't need to pay a significant premium to enter, given the compressed spreads."
CLOs have posted unprecedented returns on their riskiest portions, while the safest tranches have consistently outperformed rival asset classes so far this year. Appetite for the product has been so intense that managers have been unable to create the bonds fast enough to meet demand. A muted mergers and acquisitions market has led to a short supply of the leveraged loans that CLOs are built on.
DWS Group, the asset management arm of Deutsche Bank AG, hired Dan Robinson last year to lead its EMEA alternative credit franchise as well as the launch of its first European CLO business.
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