Invesco has applied to launch a pair of collateralised loan obligation (CLO) ETFs with the Central Bank of Ireland (CBI) after understanding that the regulator is set to change its stance on the exposure.
The firm plans to introduce a US dollar AAA CLO ETF and a Euro AAA CLO ETF, as first reported by Ignites Europe. If approved, they would be the first Ireland-domiciled ETFs to offer 100% CLO exposure.
Although structured as a single security, a CLO is an actively managed pool of 'leveraged' loans split into tranches, with the AAA tranche at the top of the capital stack.
By constructing a single security from a diversified bundle of loans, CLOs can offer a higher yield than an individual loan with the same risk and credit rating.
Until the CBI’s recent pivot, Europe’s principal ETF regulators had a divergent view on CLO ETFs.
The Luxembourg regulator, the Commission de Surveillance du Secteur Financier’s (CSSF), was more acquiescent and in August approved Europe’s first ETF with 100% exposure to CLOs – the Fair Oaks AAA CLO UCITS ETF (FAAA).
Janus Henderson also recently filed to establish a Luxembourg-domiciled CLO ETF.
The CBI, on the other hand, was resistant until it announced in October that it would be “converging” its approach with other fund domiciles.
Invesco, which has a $234m AAA CLO ETF in the US, is looking to capitalise on the CBI’s volte face with the proposed launches.
Gary Buxton, head of EMEA and APAC ETFs at Invesco, said: “We’ve had fruitful conversations with our clients about the potential for UCITS ETFs on CLOs for many years.”
