Risk retention rules in the European & US CLO markets
According to the audience that attended the Creditflux Symposium last month in London, there is little clear evidence to suggest that risk retention rules have improved the alignment of interests between managers and investors in the European CLO market. Similarly, when asked to predict the number of different managers who will issue CLOs in the first half of 2016, most participants said that US risk retention rules will be responsible for a sharp decline in the number of managers able to bring CLOs to market.
As one can see below, most survey participants believed that there has been a mixed impact. It is also notable that 23% of respondents felt that the rules were unnecessary and responsible for distorting the market while only 5% believed that the rules had improved Europe’s CLO market. The majority of Creditflux Symposium participants also predicted that the number of CLO managers that would price a deal in the US would drop from 61 in 2015 to 40 or less in 2016, indicating that there is anticipation in the industry that regulations and resulting pressure to raise capital will shrink the CLO manager universe.