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Principal affiliate seeks to further expand its CLO portfolio

Asset manager says investment class getting ‘a bit of a bum rap’


Principal Financial Group has been actively building its portfolio of collateralized loan obligations over the past two years through the efforts of one of its boutique investment firms, Post Advisory Group.

 In September 2017, the asset management firm, which is majority-owned by Principal, announced plans to build a CLO management business and now manages a growing portfolio with more than $400 million currently under management. Post’s CLO portfolio is part of more than $17.5 billion in total assets under management by the firm, which is based in Los Angeles.  

Bill Lemberg was hired as a managing director by Post two years ago for his experience in building a CLO portfolio for Alcentra, the debt management subsidiary of the Bank of New York Mellon Corp. 

“There has been a lot of coverage of the use of CLOs in the mainstream media and industry publications,” Lemberg said in a telephone interview. “It’s no surprise that people are picking up on that and asking questions.”  

Some of those articles reveal “a general bias” against CLOs, he said. 

“I think it really stems from looking for the next catalyst for the next downturn,” Lemberg said. “I think CLOs get a little bit of a bum rap because of that. I think the changes that have gone on with the asset class since the financial crisis have improved the strength of them and reduced the risk of them. Even [before those changes], they performed very well during the financial crisis.” 

As a manager of CLO debt, Post issues both debt and equity tied to CLOs to investors, primarily banks but also to insurance companies as well as hedge funds and other types of asset managers and mutual fund managers that are participating to pursue different strategies. 

“The spread differential has attracted a broader investor base over the last several years,” Lemberg said. 

“The way that CLOs are structured, two-thirds of a tranche is AAA-rated, and 65% of that is held by banks. The insurance companies tend to hold mostly the [tranches] in the AA to A, going to down to some BBB or equity, but very few in those lower tranches,” he said.

Jeff Stroll, Post’s co-chief investment officer, said his firm’s goal is to slowly increase the CLO portfolio to between $4 billion and $5 billion. 

“Our expectations are that we will slowly grow it with one to two transactions per year,” Stroll said. “We’re very much focused on performance; we really want a sustainable platform. We’ll never be a top tier [firm] by assets under management, but that’s intentional.”

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