The CLO Sell Side experience
Hey there,I have been a long time lurker here, and thought I could maybe add my 2 cents about a relatively niche part of the market. If this is too bloated or not useful, let me know.
I have worked on a sell side CLO primary desk at 2 US banks. Specifically as a CLO Structuring guy. My journey to get to a desk was non traditional so please take it with a grain of salt(started off in europe in Product Control before moving to NY in the CLO team).
CLOs absorb a lot of the lev loans that a IB underwrites. So a lev loan team will often end up selling off their loans to a CLO manager. Typically you make a fee of about 15-30bps on the CLO size. So a 400m CLO gets a desk anywhere from 500k to maybe a 1m or so. You will also make some financing interest pnl on the warehouse. Also these arent typically underwritten per se, so the downside risk is generally much lower(i.e. you dont have to take down bonds if you dont place them), a CLO only "happens" when you are almost sure you can place it, else you can just keep the warehouse going. The best way to think about a CLO in my view is that its simply term financing the portfolio without MTM for an asset manager, to grow our their AUM.
As a sell side CLO guy, you could either get into syndication side of things, where you sell the tranches to the market, or you become a CLO Structrer where you help model and construct the CLO. Both can eventually lead to a origination path, or an exit to a buy side (via an asset manager, or to a CLO investor). Syndication may also be a viable path for you as you grow into the role once you have worked as a structrer.
Comp thoughts(structuring only):
Analyst: 140k USD to 250k USD
Associate : From 200k USD to 400k USD
VP : from 250k USD to 600kUSD(?)
The role:I personally enjoyed my role a LOT more than a traditional IB(I only base this on my talks with the IB people I knew).The best part for me was that the role was very analytical(in my view). The "materials" we worked on were always the excel files, and no PPTs, no logo rearrangement or any footnotes really took up your time. Yes, you had to make the file look presentable, but it was all tables and numbers that an automated model took take care of. The turn arounds were also pretty quick. A manager would send you a portfolio to structure, and you would ideally be responding to them within a day. You had a senior structurer looking over your work, but it was always super quick feedback, and the main focus was almost always about getting the numbers/model right. A marketing pack that would get sent out would also only take maybe a day or two to put together.I had to really know the CF modeling aspects of the product, along with being able to figure out what yields/returns the different tranches were offering(specifically the equity).
So on a good/interesting day for me, I would have a CLO Equity buyer/Asset manager looking at the model I created, asking about the different return profiles, figuring out ways to maximize leverage in the structure, and being able to generally talk about the CLO Structure.Does a 10bps of management fee rebate allow for the bid on the equity tranche to go up by 2-3 points ? Does that number change if we shorten the CLOs reinvestment profile ? What if the manager was able to "create" the underlying collateral 20bps lower ? What if underlying loans don't prepay that quickly ? What if the prices of new primary pipeline comes at a lower price point ? What is the impact of Libor to Sofr transition on my returns ? Does a better rating profile on the loans allow me to improve the leverage ? Are there other levers to pull in the model to get more leverage such as adding more rating agency constraints ? Or when it was covid, and the entire CLO dynamic changed to a pull to par trade. You lever up the equity tranche and ride out the pull back in the loan prices, and suddenly a 25% return seems standard, that is what you would present to a manager.
Once a deal prices you would also be responsible for the deal to close. WHs are bankruptcy remote SPVs, and they have their own economics to them. You would work with RAs to ensure the ratings come out the way you expect them to.
Eventually this(the role) would grow into negotiating the actual governing document. The lawyers would write the doc, and you will simply get involved in negotiating the document with the investors. Or take their stips to the manager and try to get the deal done. All of it while managing the pricing timeline, while working closely with the syndicate guys to keep them in the loop on "where does the structure stop being ratable". Your job is to make sure all these agreed to points are reflected in the docs, however the doc itself is obviously coming from the lawyers.
Hours: Better than typical IB hours for sure. But obviously depends on the deal flow. Personally I probably worked 12-15 hour weekdays early on, though bottom line it just depends on how quickly the deal comes along. I have had almost 80-90% of my weekends to myself, a manager would generally not expect you to turn things around on a weekend, unless it was a specific market. I had a hard start time of 7.30am in the morning though, so you had to absolutely be on the desk by then(of course the team understood if you were slightly late after a midnight stint the day before)
There is no wait time here either(not sure if that happens in traditional IB tbh, but i was always going 100miles an hour in the day). I have almost never had a situation where I have had to look at the clock while waiting. There was rarely ever any waiting. It almost always went by in a flash given how "active" it felt. I have also never had to spend a lot of time making "things look pretty" given its all Excel files. Or waiting for EOD responses from my MD(again, this happens but not that frequently) . It also helps that these teams are lean, anywhere between 3-8 people(again may differ in different markets), with usually only 1-2 MDs, so you pretty much know how its going to be.
Issues :The usual ones exist. There are bad personalities on the desk. You are invariably at the mercy of the manager and some of the clients can be challenging to work with. I have had panic attacks because of how a client reacted to my email, while my MD screamed at me for even asking the Qs which made sense. All in the span of 5 mins. Sales may shout at you, people may not understand why it takes longer to get something out because of different backgrounds, and the product being more technical. You may also feel you aren't as important as the person selling your deal(syndicate/sales) because they do make or break the deal. A good desk is almost always a good desk because of the pricing it gets, and not because of structuring, however it can be a bad desk because of a badly modeled deal. None of these are honestly really that bad given what I hear from the other threads.
Thats my few cents. Apologies if it felt a little disjointed, or not helpful. All the best with whatever you do.
This is great, thanks for chiming in. We need more CLO representation on this forum, especially on the structuring / arranging side. It's a booming market (albeit a little slow at the moment). I think most CLO stuff I've seen on WSO has been with respect to working as a credit analyst for a CLO as a post-traditional IB exit, rather than as a structurer / tranche buyer, and especially not as an actual arranger. I know some banks do it differently, but at my bank our team handles all aspects of the CLO other than most terms of the warehouse, although we do work closely with the warehouse team. So all settlement stuff (flow of funds, post-pricing problems), structuring / RA analysis (which encompasses the RA software, portfolio turning, returns analysis, etc.), stip negotiation, marketing, with the seniority of responsibility flowing from beginning to end.
I do agree it is quite technical. I think it's a great job for finance people who are good with numbers. One thing I really like about it is I feel like unlike other areas of markets, it's still rather inefficient and there are a lot of ways to stand out.
The "crash the economy" jokes from friends do get old and are just uninformed, but that comes with the securitized territory I guess.
I do have a few questions for you, if you wouldn't mind.
1. How did you make the transition from PC to this role? How long were you in PC, and how long have you been doing this? Are you currently a VP?
2. Any idea where your bank typically falls in the league tables?
3. Are you more of a pure-play structuring guy or do you get involved in syndication? If not to the latter, are you aiming to?
4. As a follow-on to 3, what are your "next steps" / what things are you trying to improve at to further yourself in this space? Are you looking to stick around for the long haul?
5. You mentioned origination as an exit opp, can you speak a little bit more to what you mean by that?
Thanks again for pitching in.
I was in PC for over an year. Joined straight out of college, and you can assume that I didn’t really know what I was actually doing.
The rule eventually is, you can be the biggest asshole in the world, not know a lot about the actual CLO itself, but as long as you bring business it will all be looked over. So, I suppose do whatever you can to get business/investors as you grow into the role.
By origination, I assume you mean winning managers’ business on the arranging side?
Happy to chime in here as well. I'm on a CLO structuring desk here at well. Can echo above poster's points for sure and all seems accurate. Comp is pretty on par- I'm at a 6-10 arranger and my comp as as senior assoc last year was M-H300s
Would emphasize. When I'm busy, we are all working late- printing OMs/flow of funds which tend to run late etc. However- really good work life balance. On a slow day like today- I'll probably log off around 4.
Have you been in this role / at this bank since graduation? Any plans on leaving or are you satisfied?
Have not been here since UG. Def looking for opportunities away working as a quote “buy side structurer” which is a more natural path but rather be doing investing on lower mezz/equity. However I’ve noticed 2dary traders getting better buyside looks to do investing. I could see myself trying 2dary trading as well on the sell side but TBD
How do you even end up in these roles as a graduate? Is it part of the FICC teams on the S&T? Cause I rarely find these positions in contrast to S&T, IB, or Capital Markets. Also, you said it is very analytical, do they expect you to be a math/statistics major cause from what I understood structuring credit products becomes very math intensive as you can't fuck up the correlation and consequently the downside risk estimations.
A lot of banks house it within S&T, though some banks are starting to carve out a program that is somewhere between IB and S&T that encompasses some forms of lending, including securitized. CLO structuring and other desks that ultimately act as lenders / arrangers tend to be more capital efficient than traditional trading desks, so it makes sense to separate them when evaluating different units on the metrics that management cares about.
Regarding the math / statistics major - no, they don't expect that from you, but I think it would help. Regarding the "downside risk estimations"... the RAs act as a backstop against any structure that would be too aggressive for the underlying portfolio (or some variation thereof). As arrangers, we act as the interface between the RAs and the CLO Manager, and provide the CLO Manager broad strokes of a structure they could achieve, often incorporating cushion for assuredness. And there's certainly wiggle room / negotiation with the RAs, particularly on the docs, but at the end of the day the worst you can do is really just market a structure that doesn't end up working, rather than settling one that is outside the RAs risk parameters.
Its comparatively more analytical in my view compared to what I hear happens in traditional IB. What I mean is that you will spend a higher proportion of your time working with actual numbers and models than on making it presentable(or making PPTs).
Its not hard at all honestly, and anyone hear with basic math skills could easily ace it.
Can people drop some comp numbers/progression here? Want to know if I’m getting paid correctly
Not sure I follow, but here is what pay for me was like
Anl 2: 155k
Anl 3: 265k
Associate1:275k
Associate 2: 450k
Bump
Thanks for sharing, is there any good reading material to get into the modelling of CLOs?
S&P published a great primer a few years ago. I would recommend that one(though it may be behind a paywall).
There are a decent other primers people have published.
Do teams like yours hire MBA associates?
I think it is irrelevant whether you have an MBA or not. They hired me, and I had a BE in Economics from a random university no one in the team knew about, and they also hired a double MBA grad for the exact same role.
They had people with OR Masters, or other technical backgrounds, but I think its irrelevant what your degree is. You are probably much better off if you know a little bit about CLOs and can make the life of your manager a little easier than someone with no clue at all.
Personally good attitude with a decent brain should be the best thing you need.
I guess I'm wondering what the recruiting pipeline is? Did you just cold apply on the website? Did you network your way in? I feel like it's hard to get into jobs with little relevant experience unless you're a campus hire.
Wow that's all you guys make? I may actually buy some CLOs this year.
An associate 2 making 450K is pretty in line with traditional IB pay so not really sure what your point is here? What a useless, classless comment.
As a client, people don't usually talk to me that way.
I see I'm attracting a negative response for my comment. You don't get what I'm saying at all. I'm the client, and I say, wow I thought you guys were gouging us on this, but it sounds like it might be good, maybe I'll buy some. And you say, no don't disrespect us, we are making tons of money! That's not how you do this.
I don't think I sound like a loser. I don't think it matters if anyone here thinks I'm a loser. But the intent of my posts is to be helpful, and if this post wasn't, then I am sorry. I'll move on.
LOSER
This guy is clearly a total clown (sadly I could see several clients of mine saying something similar) but let this be a lesson to sell siders everywhere sometimes claiming poverty can be a way to get trades. Remember half this job is being the person the guy on the other side of the phone wants you to be. For our buyside friends, sadly the bank keeps most of the profits very little flows down to the employees so for the sake of keeping my wife in lulu and my daughter in private school buy our deals.
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