Today’s show is both a sponsor insight and another empty room, an exciting investment opportunity where few are paying attention. This time, it’s CLO equity, an asset that has consistently generated strong returns with modest risk for decades. That fact may come as a surprise to many.
Thomas Majewski is the Managing Partner and Founder of Eagle Point Credit Management, a $14 billion specialist credit manager that’s believed to be one of the largest investors in CLO equity in the world. Tom has spent his entire career in the structured finance and credit markets, including the early days when he likely was the first person to refinance a CLO.
Our conversation offers a master class on CLOs across Tom’s career history, the mechanics of CLOs, and nuances of the business. We discuss his early years in the business, characteristics and performance history of the asset, and the launch of Eagle Point in the aftermath of the financial crisis. We discuss Eagle Point’s strategy, investment process, team, desired traits of successful CLO collateral managers, opportunities in CLO debt, and Tom’s vision for the business going forward.
2:16 Tom’s background
4:58 Difficulties valuing CLOs
10:16 Path to launch Eagle Point
13:34 Unit economics of a CLO
20:01 Impact of leverage on CLOs
23:15 CLOs in the GFC
29:34 Creating a strategy
32:12 Creating new CLOs
36:18 Assessing collateral managers
41:22 Managing turnover
43:49 Sourcing transactions in secondary market
47:59 Analytics behind a CLO bid
50:25 Exercising equity rights
53:36 Eagle Point’s team structure
57:24 Competitive landscape within CLO equity
1:01:13 Risk in CLO market
1:07:51 Near-term future of Eagle Point
1:10:21 Closing questions