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.