By the Numbers
Manager returns edge closer to market through March
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Returns in the average CLO loan portfolio continued to trail the broad loan market for the three months ending in March. After adjusting for risk, the average manager tracked by Amherst Pierpont lost to the S&P/LSTA Total Return Index by 3 bp. This is the fourth consecutive month that managers’ excess return trailed the index. However, March performance improved by 2 bp from the month before.
After accounting for managers’ reporting dates, the S&P/LSTA Total Return Index posted returns of -42 bp for the three monthly reporting periods ending in March. The average loan portfolio for managers with five or more actively tracked deals had a beta to the index of 1.02, reflecting slightly more risk than the index itself although down from a beta of 1.03 earlier this year. With that beta, the average portfolio should have returned -43 bp. Since the average portfolio instead lost 46 bp, it ended up with a rounded 3 bp loss.
The excess return posted by individual managers over the past three months ranged from 41 bp at the high end to -29 bp at the low end, slightly narrower than the 25 bp to -47 bp range a month ago. Of the 75 managers tracked, only 20
or 26.7% posted positive excess return, flat compared to the numbers in February but down from 37% in January. Individual manager beta ranged from 1.29 at the high end to 0.86 at the low end, reflecting wide differences across managers in the amount of risk taken from deal to deal and over time.
Managers underperformed, but there is a silver lining
Leveraged loan prices had a big swing in March. The average loan hit a year-to-date low of $95.88 on March 15 before rebounding to $97.60 at quarter end. The negative momentum among CLO managers showed most managers were not immune to heightened market volatility, but there is a silver lining in performance data. Of the 55 managers who posted negative excess returns in March, the weighted average of -11 bp for the three-month performance is a 2 bp improvement from the levels in February. The remaining 20 managers who posted positive excess return had a weighted average of 16 bp for the 3-month performance. This is 8 bp improvement from the return posted by managers with positive returns in February. Overall, March performance reduced the negative return by 2 bp from a month ago (Exhibit 1).
Exhibit 1. Historical manager excess return after adjusting for risk.
Note: The data shows the average excess return relative to the S&P/LSTA Total Return Index for 75 managers with five or more active deals. The data cover performance for the three monthly reporting periods ending on or before March 22, 2022.
Source: Intex, Markit, Amherst Pierpont Securities
Lost loan price advantage with rising power of weighted average loan spread
Managers with a higher weighted average price on loans had generated better excess returns in the past, but the relation evaporated in the latest market volatility. By contrast, WAS showed a correlation of 0.45 with excess return, a big jump from prior two months levels, and bid depth shows a stronger negative correlation (Exhibit 2). Higher spread and lower liquidity tended to coincide with better excess return, suggesting illiquid assets performed well.
Exhibit 2: Correlation between loan attributes and risk adjusted excess return
Note: Data shows correlation of each measure, calculated across each manager’s outstanding deals, with excess return or alpha as measured for 75 managers through March.
Source: Intex, Markit, Amherst Pierpont Securities.
When compared the loan attributes from managers delivered positive and negative excess returns, it is clear managers who took risk were rewarded despite the softness seen in loan prices (Exhibit 3).
Exhibit 3: CLO managers with high-risk loan profile delivered better return in Mar
Source: Intex, Markit, Amherst Pierpont Securities.
With mounting geopolitical risk in broad credit market, volatility in loan prices looks unlikely to recede in the near future.
Low beta managers advantage diminished in March
Corresponding to what we observed in loan attributes, low beta managers performance advantage also diminished in March. Portfolio beta is a measure reflecting the volatility of portfolio returns compared to the market index. In general, the more volatile a loan portfolio, the higher the required debt and equity return. In February, the return difference between CLO managers with beta less than 1 and those greater than 1 was 9 bp. The gap was reduced to 2 bp in March. And regardless of beta, both groups had returns in negative territory (Exhibit 4).
Exhibit 4: The beta difference is less palpable
For the three months ending in March, CBAM, Fortress, ZAIS, CSAM and Golub Capital led all larger managers with the highest excess returns. A list of all other larger managers and their level of excess returns is below (Exhibit 5). A complete list of managers and their recent returns is here.
Exhibit 5: CLO manager performance for the three months ending March
Note: Performance for managers with five or more deals issued since January 1, 2011, and tracked by APS. Performance attribution starts with calculated total return on the leveraged loan portfolio held in each CLO for the 3-month reporting period ending on the indicated date. CLOs, even with a single manager platform, may vary in reporting period. The analysis matches performance in each period to performance over the identical period in the S&P/LSTA Leveraged Loan Index. Where a deal has at least 18 months of performance history since pricing and no apparent errors in cash flow data, the analysis calculates a deal beta. The deal beta is multiplied by the index return to predict deal return attributable to broad market performance. Where no beta can be calculated, the analysis uses the average beta across manager deals weighted by the average deal principal balance over time. Any difference between performance attributable to beta and actual performance is attributed to manager alpha.
Source: Intex, Markit, Amherst Pierpont Securities.
A link to Amherst Pierpont’s latest CLO manager bubble chart (Exhibit 6) and to data on more than 140 managers and more than 1,000 active deals is here.
Exhibit 6: Amherst Pierpont CLO manager bubble chart
Source: Intex, Markit, Amherst Pierpont Securities
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
