aci us winners report 2020 - .global · aci us winners report 2020 03 hfm.global introduction hfm...

S P EC I A L R E P O R T

INSIDE / BNY MELLON’S PERSHING /

JENSEN PARTNERS / KOPENTECH / SRZ

ACI US Winners Report 2020

Schulte is a premier law firm in private credit, distressed investing and direct lendingWith decades of experience and a great depth of expertise, our lawyers have a large client base representing many of the prominent players in the credit industry. We are a full-service one-stop-shop for credit-focused investment managers.

Fund formation and fund restructurings

CLOs

Seed / anchor investments

Joint ventures

Lending and other debt transactions

Specialty finance transactions

Regulation and compliance

Tax structuring

Spin-offs and lift-outs of investment teams and funds

Succession planning and upper-tier ownership

State licensing

YOUR CREDIT DESTINATION

Schulte Roth & Zabel LLP New York | Washington DC | London www.srz.comThe contents of these materials may constitute attorney advertising under the regulations of various jurisdictions.

03ACI US WINNERS REPORT 2020HFM.GLOBAL

Introduction

HFM EDITORMatt Smith

STAFF WRITERRoss Law

COMMERCIAL DIRECTOR, HFM GROUPLucy Churchill

+44 (0) 20 7832 [email protected]

SALES DIRECTORAlex Broughton

+44 (0)207 832 6631 [email protected]

COMMERCIAL HEAD OF NORTH AMERICA

Tara Nolan+1 646 891 2115

[email protected]

BUSINESS DEVELOPMENT MANAGERS Jordan Flynn

+44 (0)207 832 6517 j.fl [email protected]

Mary McAvey+1 646 891 2145

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SENIOR MARKETING MANAGERMary Chaney

THE MEMBERSHIP TEAM+44 (0) 20 7832 6511

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SUB EDITORTodd Palmer

HEAD OF DESIGNJack Dougherty

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ISSN PRINT: 2732-4125 ONLINE: 2732-4133

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Alternative perspective The Alt Credit Intelligence winners report highlights the recipients of the awards in 2020.

In what has been a turbulent year, the contributors within give thought to the flux and vola-tility introduced into the market and reflect on how the alternative credit space has combated such effects and what their outlook is as we move into 2021.

Elsewhere in the report, the evolution of the securities market, the rising importance of prod-uct specialists and the health of the CLO secondary market are given consideration.

Overall, this report should give our readers an idea about some of the best performers in the alternatives space, along with expert thought on the position the market is in now, and where it is heading in the future.

Ross Law, staff writer

For more information, visitssctech.com

Proud Sponsor: Alt Credit Fund Intelligence US Awards


Contents

07 The evolving securities market Mark Aldoroty of BNY Mellon’s Pershing outlines the drivers for hard-to-borrow securities

11 The must-have for private credit managers Sasha Jensen, CEO and founder of Jensen Partners, determines why product specialists are becoming increasingly important

15 Setting up to win in 2021 and beyond David Nissenbaum and Samuel Roh of Schulte Roth & Zabel LLP assess the challenges 2020 has brought to the credit space and look ahead to the opportunities for positive rebounding in 2021 and beyond

18 Introducing barometers of CLO secondary liquidity Andreas Kraus of KopenTech outlines the case for the health of the CLO secondary market

I N S I D E

06 ACI US WINNERS REPORT 2020 HFM.GLOBAL

Winners

CATEGORY WINNERS

Best audit service Ernst & Young

Best compliance services Alter Domus Highly commended: Alaric Compliance Services

Best custodian / prime services BNY Mellon’s Pershing

Best data and information provider AdvantageData

Best debt/ loan administrator Intertrust Group

Best fund admin – private credit NAV Fund Administration Group Highly commended: US Bank Global Fund Services

Best fund admin – traded credit Opus Fund Services

Best administrator – overall Citco

Best fund structuring service Ropes & Gray

Best law firm – lending and securities Schulte Roth & Zabel

Best middle office services BNY Mellon Highly commended: Intertrust Group

Best placement agent – credit Stone Mountain Capital

Best portfolio management system Indus Valley Partners Highly commended: SS&C Advent

Best recruitment firm Jensen Partners

Best tax advisory firm Weaver

Best valuation service IHS Markit

Best trading and execution technology Portfolio BI Highly commended: SS&C Eze

Best cybersecurity firm Drawbridge

Best technology innovation KopenTech

Best technology overall SS&C Technologies Highly commended: RFA


Sponsored contentBNY Mellon | Pershing

As standards in transpar-ency and technology have evolved over the past few years, today’s markets are undergoing

changes that are both behavioural and technological in nature. One of the most notable observed changes is that securities are becoming hard to borrow (HTB) and more expensive at a faster pace. As managers try to adapt to the changes, it is important to understand the underlying drivers, so they are better equipped to optimise their strategies.

Technology, as in everything, is bringing new efficiencies and trans-parency to the securities lending mar-ket. The reliance on data from multiple sources has now become common-place and is embedded in trading desk algorithms and trading systems.

An increasing number of lenders are utilising technology platforms with analytics and machine-learning capabilities to determine the oppor-tunity costs of lending. Further, bots and other forms of AI are being used to scan news articles and social media for mentions of a security to gauge de-mand in a security. The use of big data and AI is driving transparency and

speed, helping with price discovery and providing insights into the depth of the market. Yet, not all participants are applying data in a uniform way, leading to inconsistencies and distortions in

rates – which are hitting the tape at a faster than ever pace, with ever wider visibility. It is important for managers to note that these rates are not always set, and things can shift overnight in the securities lending market. That’s why it is critical to partner with a prime broker who can provide a bird’s-eye view of the market and let them know whether the rates are market-set or a short blip.

Another factor exacerbating the situation is when securities expe-rience both lowered supply and heightened demand, a typical issue

faced in bearish markets, and one we have experienced recently in the wake of the pandemic sell-off. Generally speaking, bearish sentiment causes investors to pull back on lending, as

they seek to offload their holdings or refrain from supporting short sellers. We witnessed this first-hand late March, early April time frame when a bearish sentiment in the market led to increased strain on securities lend-ing. Maintaining open and frequent communications with prime brokers, particularly in such markets, can help hedge funds get a better handle on the market, as prime brokers can provide the much-needed visibility into the HTB supply based on their broad read of the market and internal supply.

Lastly, managers should be aware

The evolving securities marketMark Aldoroty of BNY Mellon’s Pershing outlines the drivers for hard-to-borrow securities

“The use of big data and AI is driving transparency and speed, helping with price discovery and providing insights into the depth of the market”

Mark Aldoroty is a managing director for BNY Mellon | Pershing. He leads the prime services and Pershing’s collateral funding and trading units. Prior to this role, Aldoroty led the prime services sales and relationship management teams. Before joining Pershing in 2014, he was a managing director for Citigroup Prime Finance, where he was responsible for the sales and relationship management team and head of client service and client integration.

Mark Aldoroty BNY Mellon | Pershing

08 ACI US WINNERS REPORT 2020HFM.GLOBAL

Sponsored contentBNY Mellon | Pershing

that automatic settlement is going to become more prevalent – due to the impending implementation of man-datory buy-in frameworks in Europe

– and thus failing on a settlement with-out repercussions will rapidly become a thing of the past. The impact of this is that market participants will have to be extra careful when providing locates on less-liquid securities for short sales. Further, broker-dealers will likely pay higher fees to avoid failing to deliver these securities and incurring the

associated penalties. This will likely lead to more participants ‘buffering’ their loanable supply because they don’t want to create unnecessary fails, considering that in such an event there are charges to incur on top of poten-tial settlement risk. With penalties increasing, higher risk may demand higher cost, like any other market. Ultimately, all these drivers will create new trends in the evolving securities lending landscape.

In the age of big data and AI, the

trend of rapid rate changes and securities becoming hard to borrow shows that this will likely continue to be a phenomenon for the foreseeable future. Managers will remain under pressure in the short term to find opportunities in a supply challenged market. Choosing a prime broker with a strong internal supply and a large visibility into the retail market can help managers to demystify the inconsist-encies in the market and offer better pricing power.


Sponsored contentJensen Partners

One of the biggest win-ners in the alternative investment industry this year is the private credit and alt credit space.

What was once considered a relatively niche investment approach just a few years ago has since ballooned into a sector that in many instances rivals traditional investing in the competition for institutional capital.

The most recent Q3 quarterly update from Preqin shows a total of 521 private debt funds currently in the market targeting a combined $295bn in capital, up by 54% from earlier in the year ($192bn). These figures are rough-ly double where the private debt market was at the beginning of 2015, when there were just 261 funds targeting $121bn in aggregate capital.

This massive market growth, both in the near term and longer term, reflects the increased sophistication of private credit strategies as well as the growing investor demand for strategies better positioned to take advantage of price dislocations. This is especially true with-in the context of the Covid-19 pandemic, which has hit private businesses the hardest and left many of them starved for capital – a gap that private debt

managers with their $300bn-plus in dry powder are more than happy to help fill.

However, this growth in both the scope and scale of the private credit space has presented new challeng-es for fund managers raising capital, particularly as strategies grow more complex and managers expand to new sources of capital.

Introducing the product specialist

This overall trend has given rise to the product specialist, someone who sits between the marketing/sales teams and the portfolio management teams and is effective at communicating the key messages of both sides. The potential responsibilities of a product specialist are multi-faceted – explaining the nuances of an investment strategy, standing in for a portfolio manager dur-ing investor calls, supporting marketing professionals with fundraising, working with business development teams to create new funds and products, filling out investor due diligence question-naires, writing investment policies, editing ESG reports – the list goes on.

In some cases, a product specialist may even serve as the primary point of contact for an investor that prefers to

spend time going into the weeds of a strategy rather than being subjected to another sales pitch.

The evolution of the product special-ist role reflects the evolution of the pri-vate debt space overall. Whereas inves-tors typically associate private debt with direct lending, this fund type represents less than half (47%) of the private debt funds in the market right now. Accord-ing to data from Preqin, other new and emerging fund types currently fundrais-ing include mezzanine (17%), special situations (14%), distressed debt (13%), venture debt (7%), and private debt fund of funds (2%). And a growing number of these funds are targeting big raises, with 17% of funds targeting more than $1bn and another 23% targeting between $500m and $1bn. The largest and most established private debt firms have a clear advantage to continue to dominate this market, especially with newcomers facing the obvious challenges of trying to fundraise in a largely virtual world.

The need for such product special-ists has only increased in the midst of the Covid-19 pandemic, with investors understandably concerned about market upheaval and portfolio manag-ers feeling over-stretched by demands from all sides. Product specialists have

The must-have for private credit managersSasha Jensen, CEO and founder of Jensen Partners, determines why product specialists are becoming increasingly important

Sasha Jensen is CEO and founder of Jensen Partners, a global advisory, corporate development and executive search firm that leverages its extensive relationships in the institutional asset allocator and alternative asset manager communities to identify and place leading capital-raising and investment candidates. Learn more at Jensen-Partners.com.

Sasha Jensen Jensen Partners


Sponsored contentJensen Partners

been able to step into this environment and prove themselves as an invaluable resource at a time when investors are hunting for an attractive place to allo-cate their capital.

This increased specialisation within the marketing function is a big part of the reason why we continue to expand our database of marketing moves to look at emerging or niche investment strate-gies – for example, infrastructure, real assets, ESG and impact investing – and variances across geographies. We also continue to track the racial and gender diversity of each move, helping bring more clarity to the extent of the diversity both within the private credit and in the larger alternative investment universe.

The product specialist is a preview of the future marketerWe see the product specialist as a pre-view of the future marketer – someone who can provide in-depth expertise on

a particular investment strategy and/or someone with investor relationships in a particular region. This may also be a sign of things to come for the marketing function more broadly, with alternative investment firms requiring an increasing number of highly specialised marketing professionals rather than a small num-ber of generalists. This bodes well for candidates that can bring a unique skill-set that clearly differentiates them from other marketers or product specialists.

This theme of specialisation shines through in our quarterly data on market-ing moves. Through the first half of the year we tracked a total of 910 moves, including 101 credit-specific moves, making it one of the most active catego-ries in our database.

A growing number of these hires are product specialists, especially among large asset managers with sizeable sales and distribution teams that want to be prepared for any kind of investor request or question. Some smaller

private credit firms are also bringing on product specialists, sometimes as a substitute for the more traditional marketing role, since these specialists are better equipped to wear many hats

– a necessity for a small and growing organisation.

For marketing candidates, the rise of the product specialists presents both a threat and an opportunity. In what is an increasingly competitive job environment, marketers can’t rest on their laurels and expect that strong investor relationships or decades of experience will be enough to get them to the final round of interviews. However, at the same time, marketers that retrain themselves as product specialists (or investment professionals that pivot to become product specialists) may have an outsized advantaged in securing lucrative roles. With the private credit industry poised to continue to grow for the foreseeable future, there will be plenty of positions available.

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Jensen Partners is an award-winning executive search and corporate advisory fi rm that identifi es and places leading capital-raising and investment candidates within the alternative investment industry. To do so, Jensen Partners takes a data-driven approach to all mandates.

We have built a platform that focuses on identifying the preeminent fund distribution specialists, providing data and insights into the industry trends, and uncovering challenges and opportunities facing our clients and partners.

Learn more: jensen-partners.com


Sponsored contentSchulte Roth &

Zabel LLP

At the end of 2019, a premier global invest-ment bank touted that the US economy is nearly recession-proof.1

Just a few months and one virus later, the US economy took an unprece-dented downturn. It recorded the steepest drop in economic output on record, and over 30 million US work-ers filed for unemployment benefits by May 2020.

No one could have foreseen this black swan and its effect on the broader economy, albeit pockets of the economy have fared better than the rest. The federal government took swift action, and the economy was buoyed by the stimulus, which provided a level of liquidity that has been beneficial to many industries, including the investment management sector. The alternative investment industry is, in a sense, reflective of the unevenly affected economy – some managers have found their strategies and efforts gain traction while others have found returns and fundraising to be elusive. But there are steps man-agers, especially those in the credit space, can take to weather and even thrive in the current economic climate.

While there are some bright spots in the alternative investment industry (for example, fundraising for single asset and co-investment deals has remained healthy, especially in the context of facilitating syndications or acquisitions by a main fund), the broader private eq-uity market slowed down in the summer. Accordingly, private equity sponsors are increasingly having to discover creative ways to extract more mileage out of capital, such as seeking greater recycling capacity, asking investors for greater follow-on investment capacity and requesting extensions to marketing periods. More so in the current climate than in the recent past, managers are clamouring for cash while investors increasingly see it as an attractive haven.

With liquidity in high demand, the private equity secondaries industry continues to build on the years-long momentum. According to Lazard, 2019 was a record year for spon-sor-led secondary transactions with $28bn of deal volume across 58 transactions. Such developments in the secondaries market preceded the Covid-19 lockdown, and the crisis has only accelerated the growth in secondary fund restructurings.

Private debt funds and emergent opportunitiesThe strength of demand for private debt and special situation funds has been one of the private investment industry highlights. The surge in demand started before the pandemic and has sustained itself partly because of factors such as the diminishing interest rate on the 10-year treasury and the relative perfor-mance of direct lending funds.

With the volatility in the econo-my, managers and investors alike in the distressed debt space now find themselves asking, “Will the opportu-nities in distressed investments remain voluminous or will the recovery of the markets and low-cost borrowing choke demand?”

Data from Preqin show that sig-nificant capital is being raised in the distressed investment space, especially by larger managers. On the other hand, certain industry insiders have pointed to signals that warrant more muted ex-pectations. Analysis suggests lowered interest rates and government interven-tion may result in fewer opportunities than initially estimated.2

Even with much uncertainty sur-rounding the market, some events seem more likely than not – the pandemic

Setting up to win in 2021 and beyondDavid Nissenbaum and Samuel Roh of Schulte Roth & Zabel LLP assess the challenges 2020 has brought to the credit space and look ahead to the opportunities for positive rebounding in 2021 and beyond

David Nissenbaum is a partner and co-head of the investment man-agement group at Schulte Roth & Zabel LLP. He primarily represents institutional and entrepreneurial investment managers, financial services firms and private investment funds in all aspects of their businesses. He structures investment management and financial services firms along with credit, distressed investing, private equity, hybrid, hedge, activist and energy funds, co-investments, funds of funds and scalable platforms for fund sponsors.

David Nissenbaum Schulte Roth & Zabel LLP

Samuel Roh is an associate in the investment management group at Schulte Roth & Zabel LLP. He focuses his practice on advising private investment funds and investment advisers in connection with their structuring, formation and ongoing operational needs.

Samuel Roh Schulte Roth & Zabel LLP


Sponsored contentSchulte Roth & Zabel LLP

will continue to spur bankruptcy and restructuring activity. In contrast to prior recessions, this current economic climate has chilled many sectors of the economy (save for certain tech indus-tries that benefit from remote work and social distancing). Therefore, it is likely that distressed investing opportunities will continue to be robust, and managers that raised distressed debt funds that are willing to seek opportunities across industries may be in a position to profit.

Despite the current economic conditions, because many nonbank lenders have entered into agreements with lighter covenants for years, many distressed companies have avoided renegotiations with creditors and have staved off bankruptcies. Many of these companies make poor candidates for debt restructuring. Moreover, unlike those seen in past downturns, recov-eries in this climate may take the form of post-reorganisation equity, which is illiquid and requires significant time for recovery.

Fund structures to seize current opportunitiesA sustained level of investor demand for distressed investments is far from guaranteed. However, managers today can start thinking about structures that can facilitate quick delivery of dis-tressed assets product to market.

Structure one: closed-end funds with medium-length termWith a closed-end structure, not only do managers benefit from a stable source of money, but they can call capital only as needed, which such structure allows the added benefit of removing idle cash from performance calculation. With investors locked in for several years, managers can focus on

investments and not worry about liquid-ity to address investor redemptions.

Such a structure may feature a two to four-year investment period from the final closing date (or in some cases measured from the initial closing date) as a shorter investment period may prove more marketable to investors. Moreover, the term may be shorter than a typical private equity product, keeping to a five to seven-year term. Shorter terms indicate to the investors an intention to deploy capital quickly into immediate opportunities and reap the benefits in a short or medium-term time horizon.

Structure two: single investment vehicles or co-investment vehicles for one-off opportunitiesAnother attractive structure to nimbly respond to the current market is a vehicle for a single investor or a small group of investors to exploit a discrete investment opportunity. This type of fundraising has become much more common in recent years, and it may allow a manager to raise money quickly when other types of structures may not.

Furthermore, for start-ups and less-established managers, a single investment vehicle can be a launching pad for a fuller investment strategy and can provide a runway for a manager to establish a track record in a particular sector.

Terms for such vehicles vary, but lockups are common with an abbrevi-ated set of documents. The manager and investors often collaborate closely to determine the terms, with much of the energy spent on investment thesis rather than structuring the vehicle.

While it is possible to quickly launch a new product, managers looking to add a distressed debt strategy to

their current program should examine whether they have the flexibility to do so under their current disclosures (or a strategy drift and its undesired conse-quences may result).

A new virtual realityBesides the economic hardship, Cov-id-19 has brought with it an unprece-dented acceleration of digitisation of human interaction. From virtual coffees and lunches to Zoom meetings, more of our communication has moved online. Raising capital and cultivating investor relations have also moved to the vir-tual platform. In this new environment, certain managers have not wasted the chance to connect more frequently with their clients, and investors, in turn, appreciate the new level of accessibili-ty to their managers.

Some asset managers have even conducted virtual due diligence, working around allocators’ require-ments for in-person meetings with new managers before investing. But with the industry shifting to the virtual space, managers should continue to be mindful of the disclosures they make to investors, including, for example, that the investment teams conduct onsite due diligence before committing to material investments.

The pandemic and the subsequent economic fallout have led to many per-manent and semi-permanent changes. Managers of all types will adapt to new market conditions. However, those who are diligent and plan with purpose will be able to capture more of the up-coming rebound and opportunities.

1 See “Don’t Look Now, But Goldman Sachs is Saying the

Economy is Nearly Recession-Proof” CNBC, published

December 31, 2019 and updated January 2, 2020.

2 See, for example, “Not Everyone Sees Opportunity in Dis-

tressed Debt Mega-Funds,” Institutional Investor, May 5, 2020.

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Sponsored contentKopenTech

Global markets have been turbulent during 2020, and the CLO market was no exception. In fact, the

fallout from the coronavirus pan-demic has been compared to historic market downturns such as the Great Depression and the Great Financial Crisis of 2007–2008. However, this comparison highlights one striking difference between the CLO market and the markets for virtually all other asset classes: the amount of available secondary trading data and historic trends.

Most publicly traded securities, like equities and bonds, have a deep history of rich data coming from exchanges. CLOs, along with other structured products, are relatively new. Even though CLOs were traded in the early 2000s, the trading picked up with the 2.0 transactions after 2008 when the structures became more standardised. Factor in a market structure where most transactions occur over the counter and outside of BWICs (out of competition), and it becomes clear that there is little historic data on CLO liquidity trends.

KopenTech is aiming to solve the problem and create indicators of

CLO market health. We were able to establish and identify a variety of metrics that help describe the state of the CLO market at a given time by studying how they responded to the market stress this spring and subse-quent recovery in the summer. The metrics that were found to be most indicative of market health are defined as follows:

• DNT Rate – The Did-Not-Trade (DNT) rate is a widely used measure of market liquidity. It is the percentage of bonds that are sent out on a BWIC and tagged ‘DNT’, meaning ‘did not trade’ or no trade agreement is reached. The higher the value, the less implied liquidity exits in the market. Historically, this rate has been 15%–-20% for the CLO market, with higher rates for HY bonds and lower rates for IG bonds. For reference, during the March Covid-19 sel-loff, this percentage reached 28%.

• Colour Rate – The Colour Rate represents the percentage of BWIC trades where price information is provided in the

post-trade colour. It can be used as a measure of market transparency, with higher values indicating more trans-parency.

• Same Day BWIC Rate – The Same Day BWIC Rate is the percentage of bonds that were announced for sale to investors and traded on the same day via BWIC. Most BWICs are announced 48 hours prior to allow bidders enough time to research the bonds in question. It can be used as more of an abstract measure of market sentiment, with a higher value indicating more stress as sellers attempt to rapidly offload positions.

• AAA Average Px Talk Deviation from Colour (PTDC) – Aver-age Px Talk Deviation from Colour (PTDC) is a measure of aggregate broker-dealer Px Talk accuracy. For each trade where colour is provided, we find the absolute error be-tween the actual colour price and the average Px Talk value across dealers. The higher the value, the less accurate

Introducing barometers of CLO secondary liquidity Andreas Kraus of KopenTech outlines the case for the health of the CLO secondary market

Andreas Kraus works as a data scientist at KopenTech, developing analytical tools and uncovering insights into structured product markets. He previously worked as a graduate researcher at the Federal Reserve Bank of Philadelphia. Kraus holds a BA in mathematical economics from Temple University and a Master’s in financial engineering from UCLA Anderson School of Management.

Andreas Kraus KopenTech



dealers are in predicting actual prices at that point in time. We use a subsample of AAA bonds only because this metric varies greatly across ratings, and AAAs provide the most complete dataset as they represent the lion’s share of trade volume.

Looking back on 2020, these

factors help tell the story of the CLO secondary market for the year. Janu-ary was relatively calm, so it can serve as a base case:

• DNT Rate: 18%• Colour Rate: 60%• Same Day BWIC Rate: 25%• AAA PTDC: 0.11 (as a % of par)

In February, most metrics remained roughly the same. However, the Same

Day BWIC Rate shot up from 25% to 40%. This rise may have been an early clue that market participants were be-coming increasingly stressed as more information about Covid-19 became available.

In March, all four factors erupted:• DNT Rate: 28%• Color Rate: 18%• Same Day BWIC Rate: 52%• AAA PTDC: 0.90 (as a % of par)

Figure 1

Figure 2



Within a matter of weeks, the market had been flipped on its head; over a quarter of bonds failed to trade, little colour was provided, over half of bonds were same-day trades, and the average error on AAA Px Talk increased by 800%.

The market remained chaotic in April, but it began trending back to normalcy in May and continued that trajectory ever since. As of October 22, 2020, all four of these indicators have reverted near their January levels. The only metric that seems to be a bit different than the beginning of this year is AAA PTDC at 0.20, but this may just demonstrate that there is currently more disagreement over scenario assumptions than there was pre-pandemic.

As these factors help paint a pic-ture of the 2020 market progression, analysing how they interact with each other can also help give us a better picture of market mechanics. When looking at how month-over-month changes are correlated between the factors, we see that many effects

occur in pairs. In fact, all factors show at least one strong correlation with another. Although correlation does not automatically imply causation, finding out which factors move in tandem is important in understanding their be-haviours. To get correlations between factors, we use data from February through September (Figure 2).

The DNT Rate is negatively correlated with the Colour Rate and positively correlated with AAA PTDC. These results imply that low market transparency goes hand in hand with poor liquidity, and vice versa. One interpretation is that because liquidity falters in times of uncertainty, infor-mation simultaneously becomes more valuable to investors, thus making them less likely to be willing to ‘show their hand’ with regards to price levels.

Colour Rate is negatively corre-lated with AAA PTDC, showing that market transparency decreases at the same time as dealer inaccuracy rises. This result could imply that dealer predictions become more inaccurate as transparency goes down because

unless a dealer is actively purchasing securities in an opaque market, recent comparable prices are hard to come by.

We also investigated correlations between changes in the four factors and changes in BWIC Posted Volumes (including DNT’d bonds). All except the Same Day BWIC Rate were strongly correlated. These results imply that an influx of market activity exacerbates all the frictional and transparency issues outlined above.

Given how these factors behaved over the course of 2020 as well as their relationships with market volume, we believe they create a substantial barometer for CLO secondary market health. Simply put, they all represent some facet of market friction. These frictions hurt everyone in the second-ary market – sellers find it hard to trade, dealers suffer price mismatches, and the market becomes debilitated under stress. A better centralised market-place would improve the CLO trading process for all parties and provide the market with the best data possible.

Personal attention for hedge funds. Today and every day.

With an investment landscape this complex, you deserve a prime broker that provides exceptional client service and financial strength, with a team that’s fully focused on your needs.

From the seamless movement of collateral to unique financing solutions, we explore every angle to help you meet your business challenges.

Learn more about our strength, supply and service. Visit pershing.com/PrimeServices

©2020 Pershing LLC. Pershing LLC, member FINRA, NYSE, SIPC, is a subsidiary of The Bank of New York Mellon Corporation (BNY Mellon). Pershing does not provide investment advice. Affiliated investment advisory services, if offered, are provided by Lockwood Advisors, Inc. (Lockwood), a Pershing affiliate and an investment adviser registered in the United States under the Investment Advisers Act of 1940. For professional use only. Not intended for use by the general public. Trademark(s) belong to their respective owners.

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