Bartsch says that, historically, CLOs that priced in tight-spread environments produced attractive equity returns during the life-cycle of the deal. Current market conditions offer low funding costs and therefore attractive arbitrage opportunities, along with cleaner (less covidaffected) portfolios and relatively long reinvestment periods. So as CLO liability spreads tighten despite growing volumes, the market looks attractive for equity investors. “This, coupled with more flexibility for CLO managers in the underlying legal documents to achieve higher recovery rates, for instance through default swaps and the ability to participate in work-our loans, has made primary CLO equity good value,” she says. Conversely, senior CLO notes are less attractive as spreads grind tighter. One challenge CLO investors face is sourcing attractive CLO equity pieces from top tier managers as these are generally oversubscribed. “It requires patience as well as a good network to be able to participate in those deals,” says Bartsch. She also believes that dispersion in CLO manager performance requires that managers are able to delve deep to identify the best performers. There is growing focus on ESG compliance in CLO portfolios, particularly from European investors, although evidence of US CLOs adopting ESG language in their deals is increasing.