How to innovate APAC CLOs?

Unpack a typical APAC CLO and you’ve got a complex payments platform with unequal cashflows. Innovation opportunities abound!

Emergent ESG tools, predictive cashflow technologies, efficient linking of secondary buyers with sellers etc. mean the tech savvy fund administrator can add value across the CLO capital stack.

The CLO equation

The CLO equation is itself fascinating as it is not just a complex cashflow balancing act. It also involves finding an efficient equilibrium between debt and equity.

Debt consists of notes issued to various investors with various rates and waterfall arrangements. ?Equity consists of an upfront cash investment drawn down in phases.

APAC CLO administrator

Integrated APAC CLO solutions typically involve the administrator in several roles. At the SPV level we serve as facility agent and security trustee administering individual loans.

At the fund level we serve as fund administrator and keep track of portfolio assets, prepare cashflow projections and financial statements etc.

CLO governance

While we undertake an array of calculations, payments and reporting duties, including waterfall calculations, LTV monitoring, reconciliations, record keeping etc.

The fund admin’s key mission is to support the manager maintain the agreed ‘CLO equation’. Checks and balances include: overcollateralization and coverage ratios, diversification covenants, subordination etc.

CLO frictions

Compared with a traditional fund admin role, CLO admin presents additional challenges.

1. While payments are predictable, cash inputs vary, necessitating early risk identification and agile responses; and
2. CLO assets’ numerosity and diversity mean managers need access to efficient tech platforms that aggregate accurate data points into valuable insights.

CLO Tech Solutions

Low historical default rates and attractive yields suggest that APAC CLOs will continue to grow in market significance in the 2020s.

For the fund admin this creates demand for new tech solutions, the most valuable of which will deliver powerful predictive insights across the capital stack for pioneering APAC credit managers.