In a recent fireside chat hosted by Giovanni Amodeo, Shiloh Bates, the Chief Investment Officer at Flat Rock Global, shared his extensive knowledge and insights on the evolving landscape of Collateralized Loan Obligations (CLOs). Below are the key topics discussed during the interview:

Shiloh Bates’ Professional Journey: Shiloh Bates began his career in investment banking before transitioning to the buy-side, focusing on CLO management. Over the past decade, he has become a significant investor in CLO equity and double B notes, eventually joining Flat Rock Global, where he now oversees $1.2 billion in assets under management (AUM).

Evolution of CLO Management: Bates discussed the transition from manual loan selection to more automated processes in CLO management. Initially, his role involved selecting loans for CLOs, but he later shifted to investing in CLO equity, finding it more intellectually stimulating.

Team Motivation and Incentives: Bates emphasized the importance of performance-based incentives at Flat Rock Global. Team members are motivated through incentive fees and management fees, aligning their performance with the company’s success.

Impact of Federal Reserve Rate Cuts on CLOs: Bates provided insights into how potential Federal Reserve rate cuts could affect CLOs. He explained that a Fed cutting cycle would likely be favorable for CLO equity, as lower rates are already factored into their cash flow projections. This could make CLO equity more attractive compared to other asset classes with declining return expectations.

Increasing Interest in CLOs: Bates highlighted the growing interest in CLOs as an asset class, driven by educational efforts and the availability of CLO-focused ETFs. He noted that Flat Rock Global has been proactive in educating investors through publications and a dedicated CLO podcast, making the asset class more accessible and appealing.

Future Outlook for CLOs: Looking ahead, Bates expects continued growth and interest in CLOs due to their favorable risk-adjusted returns and the increasing availability of educational resources for investors.

Key Timestamps:

00:08 Introduction to CLO Trends
04:03 Historical Context of CLO Cycles
07:15 Lessons Learned from Defaulted Loans
10:52 Market Adaptations and Future Directions
15:32 Middle Market CLOs: A Niche Opportunity
17:07 Growth Potential in the CLO Market
18:40 Evolving Team Dynamics in CLO Investing
19:39 Understanding CLO Investment Strategies
21:55 Market Outlook: Fed Rate Cuts and CLOs
25:40 Growing Interest in CLOs: Education and Accessibility