Commissions and fees for pre-GFC CDOs and modern CLOs
To anyone who was around before '08 and to anyone who currently works in credit/LevFin, hope you can help me with this:
Obviously, in hindsight, the whole GFC was a huge bubble of greed and misaligned incentives. I'm trying to understand the incentives behind both the firms and the individuals that were too blinded with selling CDOs and other credit products.
Anyone remember the specific details ($ or % terms) on management fees for creating/assembling CDOs? Or the commissions that salespeople made selling dog$hit CDOs?
Can anyone currently in the industry share about the commission/fees associated with CLOs? Are they as high as the fees on CDOs and could it drive greedy actors to cause another credit bubble all over again a la 2008?
Thanks
Bump, hope someone who sees this can answer
Usually there like 50 bps of management fees like the senior and junior fee today and others, not sure how it was in the past.
Can you elaborate more on what is junior and what is senior fee?
In hindsight, I might've done a bad job explaining just how many fees there are within a CLO. There's a few resources on this, but basically the collateral manager gets management fees for managing(buy/selling) the loans within the CLO, and there's a senior fee usually around 15bps paid before the debt holders of the CLO notes, and a junior management fee of usually around maybe 20+ bps paid before the equity distributions. Aside from that there's trustee fees, legal fees, performance incentives for the managers. Fees paid out to ratings agencies as well. Various payments and things for the arranging banks as well and there's the whole warehousing thing as well. Every counterparty gets nicely fed in the issuance and maintenance of a CLO. Don't think I answered your question that well, but there's so much to get into. I don’t think the way the fees are structured can be exploited that easily for greed. Maybe the manager could try and flex a bit to get more incentive fees by buying riskier assets, but they are severely constrained by the various tests ran on the underlying collateral on every trade.
+SB'ed. Thanks Rudyha for the explanation.When I ask about how the fee structure might cause greed or perverse incentives, I dont mean like the fee structure has flaws where it can be gamed, I just mean that if the fees are high enough, like relative to other products or just too high in general, that would lead to greed. But it seems like from your explanation, post 08', CLOs are much more regulated and there's more oversight to ensure the CLO constituents are actually healthy
Doloremque aut ex sit sed porro accusantium impedit. Assumenda nihil est animi neque temporibus quae. Consequatur amet voluptatem consectetur et. Velit quasi omnis dolorem ut vero blanditiis. Minus eum saepe harum perspiciatis.
Odio quia laudantium debitis. Et commodi qui explicabo voluptates. Possimus consectetur velit sit ut quia et incidunt. Repellat recusandae aliquid accusantium enim saepe eius nihil.
Non culpa quo autem veritatis voluptatem pariatur qui. Maxime voluptatem animi ipsa occaecati. Explicabo ab dolores fugiat libero ipsum occaecati reprehenderit et. Ea ducimus sunt excepturi atque hic asperiores sint.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...