Evaluating CLO Equity Returns in Context

Peter Polanskyj offers a three-part perspective on CLO equity arbitrage: the difficulty of predicting returns upfront, the continued existence of captive vehicles suggesting they deliver some value, and the historical outperformance of CLO equity versus other asset classes. He also discusses the importance of cash flow timing and credit curve shape when comparing equity to double B tranches. David Altenhofen adds that in Europe, equity must clear a meaningful premium above single B yields to be attractive, often requiring fee rebates or warehouse carry.