Public Fixed Income
The Expanding CLO Opportunity
Barings' Steve Page discusses the growth of the CLO market, and why an increasingly diverse range of investors are attracted to the asset class.
Transcript
Greg: Welcome, everyone, to the latest episode of Streaming Income, a podcast from Barings. I'm your host, Greg Campion, and I am excited to be joined today by Steve Page, portfolio manager in our structured credit group. We are gonna go deep on CLOs today, and it's gonna be a great conversation. Before we get into that, just wanted to remind you that you can subscribe to Streaming Income on Apple, Spotify, YouTube, or wherever you get your podcasts.
And if you like Streaming Income, you will love our LinkedIn newsletter, Where Credit Is Due, so make sure you go subscribe to that as well. Links to everything in the show notes. With that, enough intro. Steve, let's get into it. How's it going?
Steve: It's going great. Thanks for having me, Greg.
Greg: Yeah, awesome.
Psyched to have you here, psyched to dive in. I feel like you're a pretty well-known guy around the firm, but you haven't been on the podcast before. So, like, if you- let's, let's just start there. Tell me a little bit about your role at Barings and what you tend to focus on.
Steve: Sure. Yeah, first-time guest, but loyal listener, so, again, appreciate you having me on.
My day-to-day responsibilities at Barings include managing and trading a portfolio of CLO tranches. We have a team that manages about thirty-four billion of AUM invested up and down the CLO capital stack from AAA-rated notes down through equity securities, and across geographies, so US broadly syndicated loans, private credit CLOs, European CLOs, and more recently, infrastructure CLOs.
So I'm sure we'll get into some of those today.
Greg: Yeah. Awesome, awesome. Definitely wanna talk about that. And then just give us a sense of, like, how the... how your team fits onto the broader credit platform at Barings.
Steve: Sure. I'd say CLOs in general have been a, a pillar of the high-yield business at Barings and the fixed income business.
Collectively, between our team, which manages CLO tranche investments at thirty-four billion, and then we have a team that issues CLOs as well, they're over twenty billion. So combined, we're a, a fifty-four or fifty-five billion dollar, kinda CLO powerhouse. We've been doing it for over twenty-five years, both on the issuance and investing side.
So a lot of experience on the team, lot of experience issuing in different credit markets through credit cycles and in all geographies of the CLO market.
Greg: Yeah, yeah. Awesome. And if anyone wants to nerd out on the history of the CLO market, I did a deep dive with Adrian Butler, who runs that CLO business that Steve was just mentioning on the origination side, and that was super interesting to go back to the kinda early '90s and see the development of that market.
Steve: That was a great podcast.
Very big shoes to fill after Adrian's performance on that one.
Greg: All right. So we're gonna dive into sort of the dynamics that are shaping the CLO market today, kinda where you're seeing opportunities, all that kind of stuff, but I just kinda wanna double-set up front for folks maybe who aren't as familiar with the CLO structure, the attraction of these vehicles, et cetera.
So can you hit that maybe just to start? Like, what's, what... How, how does a CLO basically work, and then, like, what, what have been those kinda key attributes that have attracted investors over time?
Steve: Sure. A CLO a-at its most basic level is a lot like a bank with a little bit of a narrower business model.
So if you think about what a bank does, it collects deposits from depositors, it takes that money and then, and lends it out to borrowers through loans, and it basically earns the difference in the rate that interest rate that it earns on the loans versus the rate that it pays to depositors.
Similarly, a CLO raises capital from issuing debt and equity securities to investors. It then takes those proceeds and lends them out to corporate borrowers in the broadly syndicated loan space. It earns the spread difference between what it pays its debt investors in the liability securities that it issues and what it earns on the portfolio of underlying loans.
That spread difference accrues to the equity in the CLO vehicle. I think the key kind of nuance within a CLO structure is the fact that it tranches out the debt securities that it issues, and it does so with different priorities of payments and ratings. So it starts at the senior-most, top priority AAA-rated class, which in today's market pays about 120 basis points over SOFR.
That's appealing to investors like banks, insurance companies. And then down the bottom of the capital structure, around the fifth or sixth priority, you'll have a BB-rated tranche. That's in today's market gonna pay something like five to 700 basis points over SOFR. That's gonna attract investments from hedge funds, pensions, those type of investors.
So it essentially takes a loan asset class, which is all BB and single B rated, and makes it investable for a larger base of investors, including banks, insurance companies, which need, obviously, higher ratings, AAA or AA ratings. So that, that's kind of what it does best is it helps match the risk-return profile to an investor's needs.
Greg: Yeah, awesome. And then, do you see investors in terms of other attributes of CLOs, so, you know, I guess being able to kind of dial in the risk-reward, you know, based on where you invest in, which tranche you invest in, seems to be a key attribute. What else are other kind of key things that have attracted people kind of over time?
Steve: I think first and foremost, it's been the performance. If you look at the long-term track record of the asset class it's performed incredibly well. So looking back over 30 years, there's never been a AAA tranche that's defaulted. There hasn't been a AAA downgrade since 2012, so very stable in terms of performance at the top of the stack.
And then even when you move further down to the BB-rated tranche, if you look back over the last 30 years, the S&P data would tell you that cumulatively, the default rate on BBs has been 1%, a little over 1%. So that's not an annualized default number. That's a cumulative 30-year period- Wow. Yeah ... default number.
Which when you put that into context of, you know, similarly rated corporate credit, that, that's obviously outstanding performance. So I think first and foremost, it's been the performance. Second is, you know, as we talked about, the ability to tailor that risk/reward profile, open the universe of broadly syndicated loans to different investor bases.
You know, these CLOs have diversified pools of loans underneath them, 2 to 300 loans, so you're getting diversified exposure to the loan asset class. It's floating rate, which I think within fixed-rate portfolio allocations has been kind of a key feature, especially more recently through the 2022-23 period, where obviously interest rates rose dramatically.
You know, investors found that they were getting marked down quite a bit on fixed-rate investments, and CLOs were kind of a hedge to that. They actually became a liquidity source for some holders through the, the '22 and '23 period, because the prices held in so well. And then lastly, I think it's the transparency that's available now within the asset class.
So every month there's a monthly trustee report. I think investors gain confidence in the fact that they can get this monthly data. They have metrics on all the underlying collateral within the portfolio, so things like ratings, ratings changes, daily marks. They can see what the manager's traded in or out of over the course of a month, so these are all actively managed portfolios.
And I think having access to that data on a monthly basis has been something that, that investors find very reassuring.
Greg: Yeah. I feel like this, this asset class has really kind of grown up, so to speak, over the last kind of decade, 15 years, whatever time period you wanna pick. Become very much more of kind of an institutionally accepted asset class.
And obviously we're seeing, you know, other investor types, invest here as well, which I wanna talk about. But, like, maybe just from, just to give our listeners some perspective, you know, I think that this is a market that maybe was once thought of as kind of a niche market in the broader credit space.
It doesn't seem like that's the case today. Give us some context just around the size of the market and maybe, like, put that in context for us.
Steve: Yeah. You're absolutely right. So I started in the market in twenty eleven, January of twenty eleven, and at the time we really hadn't come back from the GFC, so issuance was very muted.
I sorta took a role in the market not knowing if there would still be a market. And today we're now over a trillion within U.S. broadly syndicated CLOs. There's another almost two hundred billion in private credit CLOs within the U.S., and then there's a European market that's about three hundred billion.
So if you total those all up, we're at about one point five trillion. That's a comparable size to the U.S. loan market and the U.S. bond market. So we're certainly not a small niche market anymore, and we've seen investors use this as a tool within multi-credit strategies more and more.
Greg: Yeah, that's interesting. Definitely, definitely not a, a niche strategy anymore when you're comparable to the size of the markets that you just mentioned. All right. So I think when most people think about CLOs, they think about, okay, this is a way to get kind of diversified exposure to broadly syndicated loans.
But as you've kinda mentioned a couple times here, the opportunity set is really evolving and expanding, I guess I would say. And so talk to us about some of the other collateral types you're seeing backing CLOs today, and maybe a little bit about kinda the CLO technology itself and, you know, to the extent there's anything else to say there that you know, is interesting for people to get exposure to some of these other asset classes.
Steve: I think, you hit it, you hit the nail on the head with the technology of the CLO. It's really something that can be utilized across different asset classes, so you're effectively just tranching out exposure to some underlying asset class. In the case of CLOs, it's broadly syndicated loans.
But we've certainly seen it applied to private credit more recently, and the private credit market has grown substantially over the past few years. We're seeing it now for infrastructure related assets, and Barings has actually been an issuer of infrastructure deals recently. We're seeing growth in that space more and more, broadly syndicated CLO issuers that are now turning their attention toward the infrastructure CLO space.
It's a good diversifier in terms of the underlying collateral. So infra is a place that it's growing. And then really there's no limit to what type of asset you could apply the technology to. So we're seeing things like rated feeder funds, where the underlying assets, or the underlying collateral may be shares in other funds shares in, you know, we've seen it range from funds that have investment-grade corporate bonds, high-yield bonds, sort of a mix of different things.
And, you know, they're tranching out that exposure into kind of a CLO structure. So, it's at the end of the day, it's not, you know, technically a CLO. It's a, it's a close cousin, but I think they're all sort of utilizing the technology that the broadly syndicated CLO space has had so much success with.
Greg: Makes sense. Makes sense. Now, we talked a little bit about the broadening kind of interest in the CLO asset class. Talk to me a little bit more about who's investing in the space, and maybe if you're seeing any changes in that kind of over time.
Steve: Sure. You know, in some regards, it's a lot of the same players.
So it's, you know, banks, both foreign and domestic, at the top of the stack. It's insurance companies which have had pretty strong demand for securities in general, just based on record annuity sales in the US over the past couple years, and the CLO asset class has benefited from that, just like other asset classes have.
It's pensions, it's asset managers, it's hedge funds. I'd say what's probably a little different is how some of those accounts are accessing the market now. So historically, it was sort of you wanted CLO exposure, you set up a separately managed account with an asset manager that bought CLOs only, and, you know, you got your exposure through that SMA.
What we're seeing now is a migration more toward multi-credit mandates, where CLOs will be an allocation within a broader fixed income portfolio. So, you know, internally, we're managing a bunch of capital that way now, where, you know, it can go into bonds, loans, CLOs, US, European, there may even be private credit within some of those portfolios.
And so that sort of lets the investor hand over the sort of allocation decision to the asset manager. So, I'd say more and more we're seeing exposure to CLOs through that lens in those vehicles- multi-credit asset. And then within the equity space particularly, I'd say the biggest move has been toward captive equity funds.
So again, as opposed to, you know, a pension or a family office handing capital over to a hedge fund and saying, "Go out and buy a bunch of CLO equity from a bunch of different issuers," now what we're seeing is those pensions and those family offices partnering up with a CLO issuer, and saying, "Okay, you decide when it makes the most sense to come to market with a CLO."
You know, we'll provide the majority, and maybe the warehouse financing for that, but, you know, you as the issuer are making the call on when's the right time to go." And so it's more of a partnership.
And then lastly, I think the biggest new entrant to the market has been the sort of wealth retail space, and most of that has been in the form of CLO ETFs- which have grown pretty dramatically over the past few years.
Greg: Yeah. I'm interested in talking about that. I know Barings recently partnered with Pacer to launch two ETFs in the space. It'd be interesting to hear you talk a little bit about kinda the rationale for that. I'm interested just generally speaking about that ETF investor base.
You know, what's interesting to them about this asset class? I'm also kind of interested in talking about, you know, with this influx of new investors from the ETF space, how is that changing the dynamics, or is that changing any of the dynamics in the CLO market itself?
Steve: Yeah, all great things we can get into.
So, I'll start maybe with just addressing the ETF market, and kind of the growth we've seen there. So there's about 55 billion now in CLO ETFs. You know, that's grown by about 15 billion a year over the past two years and will likely exceed the 15 billion this year. So it's been on a massive growth trajectory.
The vast majority of that 55 billion by the triple A rated tranche exclusively. In terms of what retail investors like about it, I think it's all the same things we mentioned earlier about what, you know, the performance and what some institutional investors have gotten comfortable with over time.
I think it's a good opportunity to pick up spread on a very risk remote basis. And so, you know, for retail, given where some of these funds have been yielding, it's made a lot of sense. And there's a ton of capital within money market funds. I think the number's, like, 8 trillion, so certainly some of that has.
Greg: Yeah, I was kind of wondering, like, where this gets reallocated away from.
You think it's some of the money market and, like- Yeah ... investment grade exposure, or what do you think there?
Steve: Yes, I think it's a combination of probably, you know, short duration fixed income funds and money market funds where investors are finding that they can get this floating rate exposure at yields that are comparable or in excess of what they're earning in those peer classes. So, you know, again, most of the growth has been in kind of the triple A, exclusively triple A focused ETFs. In terms of the ETF that we're launching, sort of the strategy there has been to Gain yield above what you would get in just a triple, an exclusively triple A-focused fund.
So, we do that by investing triple A through double B-rated tranches. We'll do that and maintain an investment grade rating. So, you know, from our perspective, we've been doing this for over twenty-five years, um, making a relative value call about, you know, sort of where the best investments are, triple A through double B at any point in time, is something that, you know, we're very experienced in doing, and we think it gives us the opportunity to pick up some incremental yield versus what you would get in a triple A-only focused ETF.
So really that's the strategy with triple AP, which is the ticker on the fund that we launched at the end of June, and then we have another secured credit-focused ETF.
That one will have an allocation to CLOs. So, it's a secured credit fund that will allocate to bonds, senior secured bonds, broadly syndicated loans, and then CLO tranches. So two different ways to get exposure to the asset class, one exclusively through CLOs, triple A through double B ra-rated tranches with an investment grade rating, and then the other, if you kinda want a broader multi-credit type lens, it'll give you access to bonds, loans, and CLO
Greg: tranches.
Awesome. Yeah, yeah, really interesting to see the access kind of broadening out and, I know everyone at Barings is really excited about this partnership with Pacer to give more people access to, you know, some of these opportunities. And, like you said, the teams here have been doing this for decades, so it's, you know, you mentioned the multi-credit angle, and I've had a chance to sit in on many of the team's allocation discussions over the years and, you know, obviously big, broad, global team, 100 people on a call sort of thing, and it's really interesting to see the discussions that happen around, not just the fundamentals, but there's often a lot of technicals between these markets that, you know, may drive an opportunity in a certain part of the CLO capital stack or a certain geography, and so it's really interesting to see the team comparing US high yield bonds to, you know, European, double B-rated CLOs or what, you know, whatever the, the specific discussion is.
So I think that's great to broaden that out. All right, let's talk about what's going on in the market right now, because you know, obviously people are really focused on things like where interest rates are heading, no shortage of geopolitical risk, everybody's looking at credit spreads, all this kind of stuff.
So, just give me your sense right now, like, as you look across the market and as you and the team have, have some of these discussions that we were just referencing, what are you seeing out there? Where are you seeing opportunities, risk? Could be interesting to hear your kinda current outlook.
Steve: Sure. I guess I'd classify our overall view as sorta cautiously constructive.
And I think that mostly has to do just with where we're at in terms of spreads on a historic basis, and that's not unique to the CLO asset class. That's true across fixed income in general. Like, spreads are pretty tight on a historical basis. Yields are still attractive, and so that's sort of where the constructive piece of it comes in, is that base rates are still elevated.
You know, the narrative around rates kinda continues to change and get updated with different headlines, most recently, obviously, that some of the geopolitical stuff that- that's going on and causing some angst amongst oil prices, and some of the inflation data. I think the nice thing about the floating rate nature of CLOs is that you basically alleviate yourself of all that rate volatility.
These have coupons that reset quarterly. They're benchmarked to SOFR. SOFR has actually been extremely stable over the past couple of years. It's ticked up a little bit recently, which means, you know, as a debt investor, when that rate ticks up and resets, you're getting some incremental coupon for that.
So, rates will continue to be thematic here, I think, through the back half of the year. Geo- geopolitical waves will continue to be thematic. We'll obviously have midterm elections coming up, so I, I don't think any of that stuff's going away, you know, and we'll sort of ride some of those headlines just like all the other credit markets do.
I will say the asset class has been resilient through, you know, the first seven months of the year. We largely expect that to continue. I do think we'll see some, we've seen and will continue to see bifurcation in both the loan market and the lower mezz tranches within the CLO space. There is some tail risk out there.
I think, you know, the level of exposure you have to that tail risk, I think will be a, kind of a key factor in performance going forward. So, you know, all in, we're constructive on where things are, but I think we're, you know, we're viewing it with a cautious lens. Now, on a more idiosyncratic front specific to the CLO market. The big thing obviously has been software.
So, I know you had Brad Lewis on I think back in April. He did a great job sort of explaining the dynamics within software, and the risks around AI disintermediation. That's something that's very close to the CLO market.
So, within the broadly syndicated loan space, software exposure is 12 to 15%.
CLOs buy 65 to 75% of the loan market, therefore they have a large exposure to the software sector, and in most CLOs it's around 12%. So, you know, there will be some performance that's dictated by the ultimate outcomes with this whole AI disintermediation narrative.
You know, there are some near-term maturities, 20, 2028 maturities within the software sector that I think are kind of first and foremost on people's radar in terms of what could happen between now and then. We've seen some developments within those 2028 maturity loans just over the past couple weeks, a couple that have been able to successfully amend and extend and push their maturity dates out, and one that got downgraded to CCC based on, you know, elevated refinancing risks.
So, I think there's gonna be, you know, this sounds cliché, and this is sort of what everyone says, there's gonna be winners and losers. But I think what it, you know, what it tells me is that credit picking is gonna be paramount both within the loan space, and it's a big part of what, how we're doing due diligence on collateral managers, and then also within the tranches that you're buying, particularly when you get down to the double B-rated, tranche within CLO debt investments.
Greg: Yeah. Yeah. The, obviously, AI is, like, such a major theme across basically all these conversations that we do these days, and I think everyone's focused on that software angle, especially in the broadly syndicated loan market.
So, you know, obviously working with Brad and, you know, the broader group of high-yield analysts to really understand how each of the business models is impacted. Is there anything else that you, how you guys are thinking about that software exposure? And I guess I'm also curious, like, as new CLOs are issued, are you seeing less software exposure in those newer issues?
Steve: Generically, I would say yes. You know, for the most part, issuers that are coming to market now are taking the exposure down by about 50%. It's not true for everyone, and we've seen some issuers that are kinda doubling down on software and still bringing new issues that have 12% to 15% in the portfolios.
It does feel like they're getting pushback from tranche investors.
Greg: You know- Is there a difference between broadly syndicated and private credit CLOs on that front? Or is there not enough of a sample size of private credit to really-
Steve: Private credit, you know, again, it varies by issuer, but generally speaking, the exposure is higher in private credit. It's a higher percentage of the private credit market. So, you know, naturally it's a higher percentage of the CLO market as well. You know, if BSL is 12%. If I was gonna put kind of just a headline number on private credit, it's closer to 15% to 20%.
And then, you know, even higher for some issuers,
Greg: So how, so how do you get comfortable at the end of the day with exposure to that risk, or managing exposure to that risk?
Steve: I think it, you know, so one, obviously, the key factor is where are you in the debt capital stack, and how much subordination do you have below you to sort of absorb what could potentially be a higher default rate within that software sector?
You know, that's sort of just the highest level, broadest lens you could look at it with. We go-
Greg: If you're in a fund that's, you know, triple A, and some of the, you know, higher tranches that you were talking about earlier, you have more cushion for potential losses there.
Steve: Correct, yeah, yeah. So triple A, you'll have 36 to 40% enhancement. So, you know, if you have a 12% software bucket, you know, if all of it were to go wrong, it's not gonna touch you at the triple A level. Obviously, if you're in the equity or the double B, you're gonna be, you know, much more conscious about what those software credits are.
I will say that, you know, we sort of view it through a lens of we've put together a list in conjunction with Brad and the high yield team of what are the credits that we should be most concerned with. So we have rankings on the different credits, and we bucket them. So it's not as simple as just what is the software exposure, but we're trying to get to and vet out what is the potentially troublesome software exposure within the portfolio, because you're not gonna find a CLO that has 0% software exposure. There may be one or two, but they'd be hard to find. It's a big part of the loan market, and it is a, you know, quite frankly, it may be an opportunity in some credits.
Greg: I was going to say, like you said, there, there are going to be winners- right.
Steve: Yeah, so, you know, I think no one is taking their software exposure down to zero, but obviously what we wanna do is focus on who's doing a better job of identifying the winners and the losers, and some of that's just gonna take time to play out.
Some of that, you know, one of the, the real-time pieces of data you have on it is what price are the loans trading at in the market. Price has tended to be a pretty good indicator of future stress, and, you know, when there's just no interest in a credit, chances are it's not gonna be able to refinance as it gets up to its maturity, and we do have a fair amount of the software sector.
It's 25 to 30% that matures between now and the end of 2028. So, there are gonna be credits that need to be addressed. So I, I think, you know, just through price you can get some idea in terms of what the market's willingness is gonna be to refinance some of those names. And ultimately what you're trying to figure out is, you know, how much risk and how much exposure do I have to this software sector?
And again, it's not the only sector within the portfolio, and there are, you know, software-adjacent sectors. There are other idiosyncratic things going on, so-
Greg: Yeah, I was gonna ask about that. I was talking about to, Trevor Slaven on our last podcast about data centers. Is, are you starting to see data center paper in CLOs already, or is it still kind of early stage for that?
Steve: It's still early stage for that. Yeah. A lot of that has been concentrated in the investment-grade corporate market. But, you know, there are rumblings within our market.
Greg: Yeah, it seems like some of it is in, there's issuance in the high-yield bond market, but maybe less so in the broadly syndicated loan market. Is that your sense?
Steve: Less so in loans so far. Yeah.
Greg: Okay, interesting. Okay, cool. I wanna just wrap up by asking you kind of what you're watching kind of in the next, you know, let's say months or years to come for investors who are in this space, looking at this space. You know, are there things that you're keeping an eye on that you would kind of put on their radar?
Steve: So other than the things we've already talked about, and obviously software would have to be on that, that list of things to watch going forward. I think there's some, ratings related things that are going on, some regulatory things that are going on. The NAIC, their risk-based capital charges are gonna change at the start of next year, so there's some implications for that in terms of insurance demand.
I think mostly positive, but just in terms of, you know, how it may affect demand at different rating classes.
Greg: Yeah. By the way, if anyone wants more detail on that, I think our insurance solutions team did a whole deep dive on all the implications, so you can really nerd out on that subject if you want.
Let us know.
Steve: Uh, there are some rating methodology changes coming from Moody's and Fitch, which will have some impact on our market. Again, mostly expected to be positive in the sense that they're expecting to have rating upgrades for some of the mezzanine tranches.
So not so much triple A, double A, but kinda single A through double B-rated tranches. You know, so that's a factor that's out there. And then I think, you know, lastly is the sort of the tail risk which we talked about. There's a, there's some tail credits within the loan market, and there's some tail credits within the double B-rated tranche market.
So we've had a great track record, a, a low default rate. We talked about the 1% cumulative over 30 years. That is gonna go up. It's not gonna go up significantly. It's gonna stay in the, you know, low single, maybe low mid-single digits, but we are gonna see some more defaults within the double B space, and that's a function of a few different things, one of which has been, you know, there's been a lot of refinancing and repricing, and therefore extension of earlier vintage transactions.
So that's sort of, you know, extended the life of some of these CLOs, and they've just had more time to accumulate credit bumps over the way. Yeah. Another has been liability management exercises within the loan space, which are not, you know, considered hard defaults, but they're effectively out of court restructurings that, you know, look and feel very much like a default.
And then, you know, you layer on some idiosyncratic things like first brands and then idiosyncratic sector themes like software, and, you know, I think the end result is that there will be, you know, there will be some investors that are not paid back fully on their BB tranches. So again, just kind of, you know, credit picking is gonna be paramount going forward.
Greg: Yeah. Yeah. Well, I always appreciate talking to really smart credit people because they-- as much as you can have a glass half empty view on the world, it is comforting to know that somebody is out there looking at all these risks and all the potential things that can go wrong. Now let me ask you just to finish up here, everything we've discussed, you know, the broadening size of the market, the increasing use of the technology, some of the risks that we're seeing from software and beyond. Sum up your outlook for an investor who's, say, looking out over the next two to three years looking at this asset class, how would you kinda sum it up?
Steve: I would, again, kind of just lean on that, you know, cautiously constructive. I think the track record of this asset class has been great. I think it'll continue to show strong performance. It's structured to withstand volatility, so this is exactly what it's structured for, is times when volatility is gonna increase.
You have enhancement at your different tranche levels. You know, this is kind of speaking from a debt perspective. So, this is what it's designed for. You capture some additional spread relative to, you know, peers in the fixed rate corporate space. But very comfortable with the asset class.
You know, I've been doing this for fifteen years. Barings has been doing it for, you know, thirty years, specifically within CLOs. And, you know, we're excited about the future of this asset class and what's to come. So, you know, I think returns will continue to be attractive and, you know, there'll be some volatility within that period, but nothing that can't be handled.
Greg: Cool. I love it. Well, I'm excited about the future of the asset class. I'm excited about our future conversations, because inevitably we're gonna have you back on this podcast, I hope, to talk about this topic again. So let's finish it there, and let me just thank all of our viewers and listeners for watching or listening.
Remember, you can follow Streaming Income on Apple Podcasts, Spotify, and YouTube or wherever you get your podcasts. And remember to go check out our LinkedIn newsletter, Where Credit is Due. And with that, thanks again for joining us.
And if you like Streaming Income, you will love our LinkedIn newsletter, Where Credit Is Due, so make sure you go subscribe to that as well. Links to everything in the show notes. With that, enough intro. Steve, let's get into it. How's it going?
Steve: It's going great. Thanks for having me, Greg.
Greg: Yeah, awesome.
Psyched to have you here, psyched to dive in. I feel like you're a pretty well-known guy around the firm, but you haven't been on the podcast before. So, like, if you- let's, let's just start there. Tell me a little bit about your role at Barings and what you tend to focus on.
Steve: Sure. Yeah, first-time guest, but loyal listener, so, again, appreciate you having me on.
My day-to-day responsibilities at Barings include managing and trading a portfolio of CLO tranches. We have a team that manages about thirty-four billion of AUM invested up and down the CLO capital stack from AAA-rated notes down through equity securities, and across geographies, so US broadly syndicated loans, private credit CLOs, European CLOs, and more recently, infrastructure CLOs.
So I'm sure we'll get into some of those today.
Greg: Yeah. Awesome, awesome. Definitely wanna talk about that. And then just give us a sense of, like, how the... how your team fits onto the broader credit platform at Barings.
Steve: Sure. I'd say CLOs in general have been a, a pillar of the high-yield business at Barings and the fixed income business.
Collectively, between our team, which manages CLO tranche investments at thirty-four billion, and then we have a team that issues CLOs as well, they're over twenty billion. So combined, we're a, a fifty-four or fifty-five billion dollar, kinda CLO powerhouse. We've been doing it for over twenty-five years, both on the issuance and investing side.
So a lot of experience on the team, lot of experience issuing in different credit markets through credit cycles and in all geographies of the CLO market.
Greg: Yeah, yeah. Awesome. And if anyone wants to nerd out on the history of the CLO market, I did a deep dive with Adrian Butler, who runs that CLO business that Steve was just mentioning on the origination side, and that was super interesting to go back to the kinda early '90s and see the development of that market.
Steve: That was a great podcast.
Very big shoes to fill after Adrian's performance on that one.
Greg: All right. So we're gonna dive into sort of the dynamics that are shaping the CLO market today, kinda where you're seeing opportunities, all that kind of stuff, but I just kinda wanna double-set up front for folks maybe who aren't as familiar with the CLO structure, the attraction of these vehicles, et cetera.
So can you hit that maybe just to start? Like, what's, what... How, how does a CLO basically work, and then, like, what, what have been those kinda key attributes that have attracted investors over time?
Steve: Sure. A CLO a-at its most basic level is a lot like a bank with a little bit of a narrower business model.
So if you think about what a bank does, it collects deposits from depositors, it takes that money and then, and lends it out to borrowers through loans, and it basically earns the difference in the rate that interest rate that it earns on the loans versus the rate that it pays to depositors.
Similarly, a CLO raises capital from issuing debt and equity securities to investors. It then takes those proceeds and lends them out to corporate borrowers in the broadly syndicated loan space. It earns the spread difference between what it pays its debt investors in the liability securities that it issues and what it earns on the portfolio of underlying loans.
That spread difference accrues to the equity in the CLO vehicle. I think the key kind of nuance within a CLO structure is the fact that it tranches out the debt securities that it issues, and it does so with different priorities of payments and ratings. So it starts at the senior-most, top priority AAA-rated class, which in today's market pays about 120 basis points over SOFR.
That's appealing to investors like banks, insurance companies. And then down the bottom of the capital structure, around the fifth or sixth priority, you'll have a BB-rated tranche. That's in today's market gonna pay something like five to 700 basis points over SOFR. That's gonna attract investments from hedge funds, pensions, those type of investors.
So it essentially takes a loan asset class, which is all BB and single B rated, and makes it investable for a larger base of investors, including banks, insurance companies, which need, obviously, higher ratings, AAA or AA ratings. So that, that's kind of what it does best is it helps match the risk-return profile to an investor's needs.
Greg: Yeah, awesome. And then, do you see investors in terms of other attributes of CLOs, so, you know, I guess being able to kind of dial in the risk-reward, you know, based on where you invest in, which tranche you invest in, seems to be a key attribute. What else are other kind of key things that have attracted people kind of over time?
Steve: I think first and foremost, it's been the performance. If you look at the long-term track record of the asset class it's performed incredibly well. So looking back over 30 years, there's never been a AAA tranche that's defaulted. There hasn't been a AAA downgrade since 2012, so very stable in terms of performance at the top of the stack.
And then even when you move further down to the BB-rated tranche, if you look back over the last 30 years, the S&P data would tell you that cumulatively, the default rate on BBs has been 1%, a little over 1%. So that's not an annualized default number. That's a cumulative 30-year period- Wow. Yeah ... default number.
Which when you put that into context of, you know, similarly rated corporate credit, that, that's obviously outstanding performance. So I think first and foremost, it's been the performance. Second is, you know, as we talked about, the ability to tailor that risk/reward profile, open the universe of broadly syndicated loans to different investor bases.
You know, these CLOs have diversified pools of loans underneath them, 2 to 300 loans, so you're getting diversified exposure to the loan asset class. It's floating rate, which I think within fixed-rate portfolio allocations has been kind of a key feature, especially more recently through the 2022-23 period, where obviously interest rates rose dramatically.
You know, investors found that they were getting marked down quite a bit on fixed-rate investments, and CLOs were kind of a hedge to that. They actually became a liquidity source for some holders through the, the '22 and '23 period, because the prices held in so well. And then lastly, I think it's the transparency that's available now within the asset class.
So every month there's a monthly trustee report. I think investors gain confidence in the fact that they can get this monthly data. They have metrics on all the underlying collateral within the portfolio, so things like ratings, ratings changes, daily marks. They can see what the manager's traded in or out of over the course of a month, so these are all actively managed portfolios.
And I think having access to that data on a monthly basis has been something that, that investors find very reassuring.
Greg: Yeah. I feel like this, this asset class has really kind of grown up, so to speak, over the last kind of decade, 15 years, whatever time period you wanna pick. Become very much more of kind of an institutionally accepted asset class.
And obviously we're seeing, you know, other investor types, invest here as well, which I wanna talk about. But, like, maybe just from, just to give our listeners some perspective, you know, I think that this is a market that maybe was once thought of as kind of a niche market in the broader credit space.
It doesn't seem like that's the case today. Give us some context just around the size of the market and maybe, like, put that in context for us.
Steve: Yeah. You're absolutely right. So I started in the market in twenty eleven, January of twenty eleven, and at the time we really hadn't come back from the GFC, so issuance was very muted.
I sorta took a role in the market not knowing if there would still be a market. And today we're now over a trillion within U.S. broadly syndicated CLOs. There's another almost two hundred billion in private credit CLOs within the U.S., and then there's a European market that's about three hundred billion.
So if you total those all up, we're at about one point five trillion. That's a comparable size to the U.S. loan market and the U.S. bond market. So we're certainly not a small niche market anymore, and we've seen investors use this as a tool within multi-credit strategies more and more.
Greg: Yeah, that's interesting. Definitely, definitely not a, a niche strategy anymore when you're comparable to the size of the markets that you just mentioned. All right. So I think when most people think about CLOs, they think about, okay, this is a way to get kind of diversified exposure to broadly syndicated loans.
But as you've kinda mentioned a couple times here, the opportunity set is really evolving and expanding, I guess I would say. And so talk to us about some of the other collateral types you're seeing backing CLOs today, and maybe a little bit about kinda the CLO technology itself and, you know, to the extent there's anything else to say there that you know, is interesting for people to get exposure to some of these other asset classes.
Steve: I think, you hit it, you hit the nail on the head with the technology of the CLO. It's really something that can be utilized across different asset classes, so you're effectively just tranching out exposure to some underlying asset class. In the case of CLOs, it's broadly syndicated loans.
But we've certainly seen it applied to private credit more recently, and the private credit market has grown substantially over the past few years. We're seeing it now for infrastructure related assets, and Barings has actually been an issuer of infrastructure deals recently. We're seeing growth in that space more and more, broadly syndicated CLO issuers that are now turning their attention toward the infrastructure CLO space.
It's a good diversifier in terms of the underlying collateral. So infra is a place that it's growing. And then really there's no limit to what type of asset you could apply the technology to. So we're seeing things like rated feeder funds, where the underlying assets, or the underlying collateral may be shares in other funds shares in, you know, we've seen it range from funds that have investment-grade corporate bonds, high-yield bonds, sort of a mix of different things.
And, you know, they're tranching out that exposure into kind of a CLO structure. So, it's at the end of the day, it's not, you know, technically a CLO. It's a, it's a close cousin, but I think they're all sort of utilizing the technology that the broadly syndicated CLO space has had so much success with.
Greg: Makes sense. Makes sense. Now, we talked a little bit about the broadening kind of interest in the CLO asset class. Talk to me a little bit more about who's investing in the space, and maybe if you're seeing any changes in that kind of over time.
Steve: Sure. You know, in some regards, it's a lot of the same players.
So it's, you know, banks, both foreign and domestic, at the top of the stack. It's insurance companies which have had pretty strong demand for securities in general, just based on record annuity sales in the US over the past couple years, and the CLO asset class has benefited from that, just like other asset classes have.
It's pensions, it's asset managers, it's hedge funds. I'd say what's probably a little different is how some of those accounts are accessing the market now. So historically, it was sort of you wanted CLO exposure, you set up a separately managed account with an asset manager that bought CLOs only, and, you know, you got your exposure through that SMA.
What we're seeing now is a migration more toward multi-credit mandates, where CLOs will be an allocation within a broader fixed income portfolio. So, you know, internally, we're managing a bunch of capital that way now, where, you know, it can go into bonds, loans, CLOs, US, European, there may even be private credit within some of those portfolios.
And so that sort of lets the investor hand over the sort of allocation decision to the asset manager. So, I'd say more and more we're seeing exposure to CLOs through that lens in those vehicles- multi-credit asset. And then within the equity space particularly, I'd say the biggest move has been toward captive equity funds.
So again, as opposed to, you know, a pension or a family office handing capital over to a hedge fund and saying, "Go out and buy a bunch of CLO equity from a bunch of different issuers," now what we're seeing is those pensions and those family offices partnering up with a CLO issuer, and saying, "Okay, you decide when it makes the most sense to come to market with a CLO."
You know, we'll provide the majority, and maybe the warehouse financing for that, but, you know, you as the issuer are making the call on when's the right time to go." And so it's more of a partnership.
And then lastly, I think the biggest new entrant to the market has been the sort of wealth retail space, and most of that has been in the form of CLO ETFs- which have grown pretty dramatically over the past few years.
Greg: Yeah. I'm interested in talking about that. I know Barings recently partnered with Pacer to launch two ETFs in the space. It'd be interesting to hear you talk a little bit about kinda the rationale for that. I'm interested just generally speaking about that ETF investor base.
You know, what's interesting to them about this asset class? I'm also kind of interested in talking about, you know, with this influx of new investors from the ETF space, how is that changing the dynamics, or is that changing any of the dynamics in the CLO market itself?
Steve: Yeah, all great things we can get into.
So, I'll start maybe with just addressing the ETF market, and kind of the growth we've seen there. So there's about 55 billion now in CLO ETFs. You know, that's grown by about 15 billion a year over the past two years and will likely exceed the 15 billion this year. So it's been on a massive growth trajectory.
The vast majority of that 55 billion by the triple A rated tranche exclusively. In terms of what retail investors like about it, I think it's all the same things we mentioned earlier about what, you know, the performance and what some institutional investors have gotten comfortable with over time.
I think it's a good opportunity to pick up spread on a very risk remote basis. And so, you know, for retail, given where some of these funds have been yielding, it's made a lot of sense. And there's a ton of capital within money market funds. I think the number's, like, 8 trillion, so certainly some of that has.
Greg: Yeah, I was kind of wondering, like, where this gets reallocated away from.
You think it's some of the money market and, like- Yeah ... investment grade exposure, or what do you think there?
Steve: Yes, I think it's a combination of probably, you know, short duration fixed income funds and money market funds where investors are finding that they can get this floating rate exposure at yields that are comparable or in excess of what they're earning in those peer classes. So, you know, again, most of the growth has been in kind of the triple A, exclusively triple A focused ETFs. In terms of the ETF that we're launching, sort of the strategy there has been to Gain yield above what you would get in just a triple, an exclusively triple A-focused fund.
So, we do that by investing triple A through double B-rated tranches. We'll do that and maintain an investment grade rating. So, you know, from our perspective, we've been doing this for over twenty-five years, um, making a relative value call about, you know, sort of where the best investments are, triple A through double B at any point in time, is something that, you know, we're very experienced in doing, and we think it gives us the opportunity to pick up some incremental yield versus what you would get in a triple A-only focused ETF.
So really that's the strategy with triple AP, which is the ticker on the fund that we launched at the end of June, and then we have another secured credit-focused ETF.
That one will have an allocation to CLOs. So, it's a secured credit fund that will allocate to bonds, senior secured bonds, broadly syndicated loans, and then CLO tranches. So two different ways to get exposure to the asset class, one exclusively through CLOs, triple A through double B ra-rated tranches with an investment grade rating, and then the other, if you kinda want a broader multi-credit type lens, it'll give you access to bonds, loans, and CLO
Greg: tranches.
Awesome. Yeah, yeah, really interesting to see the access kind of broadening out and, I know everyone at Barings is really excited about this partnership with Pacer to give more people access to, you know, some of these opportunities. And, like you said, the teams here have been doing this for decades, so it's, you know, you mentioned the multi-credit angle, and I've had a chance to sit in on many of the team's allocation discussions over the years and, you know, obviously big, broad, global team, 100 people on a call sort of thing, and it's really interesting to see the discussions that happen around, not just the fundamentals, but there's often a lot of technicals between these markets that, you know, may drive an opportunity in a certain part of the CLO capital stack or a certain geography, and so it's really interesting to see the team comparing US high yield bonds to, you know, European, double B-rated CLOs or what, you know, whatever the, the specific discussion is.
So I think that's great to broaden that out. All right, let's talk about what's going on in the market right now, because you know, obviously people are really focused on things like where interest rates are heading, no shortage of geopolitical risk, everybody's looking at credit spreads, all this kind of stuff.
So, just give me your sense right now, like, as you look across the market and as you and the team have, have some of these discussions that we were just referencing, what are you seeing out there? Where are you seeing opportunities, risk? Could be interesting to hear your kinda current outlook.
Steve: Sure. I guess I'd classify our overall view as sorta cautiously constructive.
And I think that mostly has to do just with where we're at in terms of spreads on a historic basis, and that's not unique to the CLO asset class. That's true across fixed income in general. Like, spreads are pretty tight on a historical basis. Yields are still attractive, and so that's sort of where the constructive piece of it comes in, is that base rates are still elevated.
You know, the narrative around rates kinda continues to change and get updated with different headlines, most recently, obviously, that some of the geopolitical stuff that- that's going on and causing some angst amongst oil prices, and some of the inflation data. I think the nice thing about the floating rate nature of CLOs is that you basically alleviate yourself of all that rate volatility.
These have coupons that reset quarterly. They're benchmarked to SOFR. SOFR has actually been extremely stable over the past couple of years. It's ticked up a little bit recently, which means, you know, as a debt investor, when that rate ticks up and resets, you're getting some incremental coupon for that.
So, rates will continue to be thematic here, I think, through the back half of the year. Geo- geopolitical waves will continue to be thematic. We'll obviously have midterm elections coming up, so I, I don't think any of that stuff's going away, you know, and we'll sort of ride some of those headlines just like all the other credit markets do.
I will say the asset class has been resilient through, you know, the first seven months of the year. We largely expect that to continue. I do think we'll see some, we've seen and will continue to see bifurcation in both the loan market and the lower mezz tranches within the CLO space. There is some tail risk out there.
I think, you know, the level of exposure you have to that tail risk, I think will be a, kind of a key factor in performance going forward. So, you know, all in, we're constructive on where things are, but I think we're, you know, we're viewing it with a cautious lens. Now, on a more idiosyncratic front specific to the CLO market. The big thing obviously has been software.
So, I know you had Brad Lewis on I think back in April. He did a great job sort of explaining the dynamics within software, and the risks around AI disintermediation. That's something that's very close to the CLO market.
So, within the broadly syndicated loan space, software exposure is 12 to 15%.
CLOs buy 65 to 75% of the loan market, therefore they have a large exposure to the software sector, and in most CLOs it's around 12%. So, you know, there will be some performance that's dictated by the ultimate outcomes with this whole AI disintermediation narrative.
You know, there are some near-term maturities, 20, 2028 maturities within the software sector that I think are kind of first and foremost on people's radar in terms of what could happen between now and then. We've seen some developments within those 2028 maturity loans just over the past couple weeks, a couple that have been able to successfully amend and extend and push their maturity dates out, and one that got downgraded to CCC based on, you know, elevated refinancing risks.
So, I think there's gonna be, you know, this sounds cliché, and this is sort of what everyone says, there's gonna be winners and losers. But I think what it, you know, what it tells me is that credit picking is gonna be paramount both within the loan space, and it's a big part of what, how we're doing due diligence on collateral managers, and then also within the tranches that you're buying, particularly when you get down to the double B-rated, tranche within CLO debt investments.
Greg: Yeah. Yeah. The, obviously, AI is, like, such a major theme across basically all these conversations that we do these days, and I think everyone's focused on that software angle, especially in the broadly syndicated loan market.
So, you know, obviously working with Brad and, you know, the broader group of high-yield analysts to really understand how each of the business models is impacted. Is there anything else that you, how you guys are thinking about that software exposure? And I guess I'm also curious, like, as new CLOs are issued, are you seeing less software exposure in those newer issues?
Steve: Generically, I would say yes. You know, for the most part, issuers that are coming to market now are taking the exposure down by about 50%. It's not true for everyone, and we've seen some issuers that are kinda doubling down on software and still bringing new issues that have 12% to 15% in the portfolios.
It does feel like they're getting pushback from tranche investors.
Greg: You know- Is there a difference between broadly syndicated and private credit CLOs on that front? Or is there not enough of a sample size of private credit to really-
Steve: Private credit, you know, again, it varies by issuer, but generally speaking, the exposure is higher in private credit. It's a higher percentage of the private credit market. So, you know, naturally it's a higher percentage of the CLO market as well. You know, if BSL is 12%. If I was gonna put kind of just a headline number on private credit, it's closer to 15% to 20%.
And then, you know, even higher for some issuers,
Greg: So how, so how do you get comfortable at the end of the day with exposure to that risk, or managing exposure to that risk?
Steve: I think it, you know, so one, obviously, the key factor is where are you in the debt capital stack, and how much subordination do you have below you to sort of absorb what could potentially be a higher default rate within that software sector?
You know, that's sort of just the highest level, broadest lens you could look at it with. We go-
Greg: If you're in a fund that's, you know, triple A, and some of the, you know, higher tranches that you were talking about earlier, you have more cushion for potential losses there.
Steve: Correct, yeah, yeah. So triple A, you'll have 36 to 40% enhancement. So, you know, if you have a 12% software bucket, you know, if all of it were to go wrong, it's not gonna touch you at the triple A level. Obviously, if you're in the equity or the double B, you're gonna be, you know, much more conscious about what those software credits are.
I will say that, you know, we sort of view it through a lens of we've put together a list in conjunction with Brad and the high yield team of what are the credits that we should be most concerned with. So we have rankings on the different credits, and we bucket them. So it's not as simple as just what is the software exposure, but we're trying to get to and vet out what is the potentially troublesome software exposure within the portfolio, because you're not gonna find a CLO that has 0% software exposure. There may be one or two, but they'd be hard to find. It's a big part of the loan market, and it is a, you know, quite frankly, it may be an opportunity in some credits.
Greg: I was going to say, like you said, there, there are going to be winners- right.
Steve: Yeah, so, you know, I think no one is taking their software exposure down to zero, but obviously what we wanna do is focus on who's doing a better job of identifying the winners and the losers, and some of that's just gonna take time to play out.
Some of that, you know, one of the, the real-time pieces of data you have on it is what price are the loans trading at in the market. Price has tended to be a pretty good indicator of future stress, and, you know, when there's just no interest in a credit, chances are it's not gonna be able to refinance as it gets up to its maturity, and we do have a fair amount of the software sector.
It's 25 to 30% that matures between now and the end of 2028. So, there are gonna be credits that need to be addressed. So I, I think, you know, just through price you can get some idea in terms of what the market's willingness is gonna be to refinance some of those names. And ultimately what you're trying to figure out is, you know, how much risk and how much exposure do I have to this software sector?
And again, it's not the only sector within the portfolio, and there are, you know, software-adjacent sectors. There are other idiosyncratic things going on, so-
Greg: Yeah, I was gonna ask about that. I was talking about to, Trevor Slaven on our last podcast about data centers. Is, are you starting to see data center paper in CLOs already, or is it still kind of early stage for that?
Steve: It's still early stage for that. Yeah. A lot of that has been concentrated in the investment-grade corporate market. But, you know, there are rumblings within our market.
Greg: Yeah, it seems like some of it is in, there's issuance in the high-yield bond market, but maybe less so in the broadly syndicated loan market. Is that your sense?
Steve: Less so in loans so far. Yeah.
Greg: Okay, interesting. Okay, cool. I wanna just wrap up by asking you kind of what you're watching kind of in the next, you know, let's say months or years to come for investors who are in this space, looking at this space. You know, are there things that you're keeping an eye on that you would kind of put on their radar?
Steve: So other than the things we've already talked about, and obviously software would have to be on that, that list of things to watch going forward. I think there's some, ratings related things that are going on, some regulatory things that are going on. The NAIC, their risk-based capital charges are gonna change at the start of next year, so there's some implications for that in terms of insurance demand.
I think mostly positive, but just in terms of, you know, how it may affect demand at different rating classes.
Greg: Yeah. By the way, if anyone wants more detail on that, I think our insurance solutions team did a whole deep dive on all the implications, so you can really nerd out on that subject if you want.
Let us know.
Steve: Uh, there are some rating methodology changes coming from Moody's and Fitch, which will have some impact on our market. Again, mostly expected to be positive in the sense that they're expecting to have rating upgrades for some of the mezzanine tranches.
So not so much triple A, double A, but kinda single A through double B-rated tranches. You know, so that's a factor that's out there. And then I think, you know, lastly is the sort of the tail risk which we talked about. There's a, there's some tail credits within the loan market, and there's some tail credits within the double B-rated tranche market.
So we've had a great track record, a, a low default rate. We talked about the 1% cumulative over 30 years. That is gonna go up. It's not gonna go up significantly. It's gonna stay in the, you know, low single, maybe low mid-single digits, but we are gonna see some more defaults within the double B space, and that's a function of a few different things, one of which has been, you know, there's been a lot of refinancing and repricing, and therefore extension of earlier vintage transactions.
So that's sort of, you know, extended the life of some of these CLOs, and they've just had more time to accumulate credit bumps over the way. Yeah. Another has been liability management exercises within the loan space, which are not, you know, considered hard defaults, but they're effectively out of court restructurings that, you know, look and feel very much like a default.
And then, you know, you layer on some idiosyncratic things like first brands and then idiosyncratic sector themes like software, and, you know, I think the end result is that there will be, you know, there will be some investors that are not paid back fully on their BB tranches. So again, just kind of, you know, credit picking is gonna be paramount going forward.
Greg: Yeah. Yeah. Well, I always appreciate talking to really smart credit people because they-- as much as you can have a glass half empty view on the world, it is comforting to know that somebody is out there looking at all these risks and all the potential things that can go wrong. Now let me ask you just to finish up here, everything we've discussed, you know, the broadening size of the market, the increasing use of the technology, some of the risks that we're seeing from software and beyond. Sum up your outlook for an investor who's, say, looking out over the next two to three years looking at this asset class, how would you kinda sum it up?
Steve: I would, again, kind of just lean on that, you know, cautiously constructive. I think the track record of this asset class has been great. I think it'll continue to show strong performance. It's structured to withstand volatility, so this is exactly what it's structured for, is times when volatility is gonna increase.
You have enhancement at your different tranche levels. You know, this is kind of speaking from a debt perspective. So, this is what it's designed for. You capture some additional spread relative to, you know, peers in the fixed rate corporate space. But very comfortable with the asset class.
You know, I've been doing this for fifteen years. Barings has been doing it for, you know, thirty years, specifically within CLOs. And, you know, we're excited about the future of this asset class and what's to come. So, you know, I think returns will continue to be attractive and, you know, there'll be some volatility within that period, but nothing that can't be handled.
Greg: Cool. I love it. Well, I'm excited about the future of the asset class. I'm excited about our future conversations, because inevitably we're gonna have you back on this podcast, I hope, to talk about this topic again. So let's finish it there, and let me just thank all of our viewers and listeners for watching or listening.
Remember, you can follow Streaming Income on Apple Podcasts, Spotify, and YouTube or wherever you get your podcasts. And remember to go check out our LinkedIn newsletter, Where Credit is Due. And with that, thanks again for joining us.
