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

 
Most Helpful

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

 

Vitae autem distinctio voluptatem commodi voluptatum omnis. Eos omnis molestiae odit cupiditate temporibus a consequatur corrupti. Tempore illo rem animi vel ex. Dolores voluptate amet ad qui ratione molestias. Qui harum at hic.

Veritatis praesentium sequi dolor beatae nemo. Repellat nobis blanditiis a inventore. Voluptatem autem est quo nihil vero. Minus dignissimos explicabo ab enim est aut. Accusamus optio iure at doloremque quo recusandae.

Qui unde quis vel ullam. Sequi est delectus reiciendis fugiat incidunt eligendi. Voluptatibus id molestias non deleniti reiciendis qui perspiciatis.

Career Advancement Opportunities

May 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 04 97.1%

Overall Employee Satisfaction

May 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

May 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

May 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (20) $385
  • Associates (88) $260
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (67) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Secyh62's picture
Secyh62
99.0
5
GameTheory's picture
GameTheory
98.9
6
kanon's picture
kanon
98.9
7
CompBanker's picture
CompBanker
98.9
8
dosk17's picture
dosk17
98.9
9
Kenny_Powers_CFA's picture
Kenny_Powers_CFA
98.8
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”