Asset manager Panagram Structured Asset Management recently launched an ETF providing exposure to collateralized loan obligations, or CLOs. But before we get into the particulars of that fund, how about a quick introduction to Panagram?
Reading through Panagram's Form ADV Part II I found that the New York-based firm was formed in November 2020 and "offers investment advisory services to institutional clients, primarily focusing on structured credit, including the debt and equity tranches of collateralized loan obligations ("CLOs") as well as asset-backed securities ("ABS"). It may also offer investment advice on commercial real estate ("CRE"), including commercial mortgage-backed securities ("CMBS"), CRE CLOs, and other loans or securities backed by CRE." As of Dec. 31, 2021, Panagram managed nearly $13 billion, so apparently it isn't bad at what it does.
The new CLO fund was launched last week on Jan. 24; it was seeded with $15 million and sports a 50-basis-point (0.50%) expense ratio. Given this expense ratio, a shareholder with $1,000 invested over a calendar year would pay $5.00 in fees over that period.
The Panagram BBB-B CLO ETF (CLOZ) is an actively managed portfolio that focuses on the CLO space. To refresh your memory, CLOs are essentially loans that are made up of (collateralized by) other loans. They are multi-tier securities that are structured so that investors can invest in various tranches, which are generally broken out by credit quality.
In this case, CLOZ focuses on lower credit quality loans as indicated by the BBB-B in the fund name. While they may differ in some areas, bond rating agencies across the board agree that bonds rated BBB or higher are considered investment grade, and anything rated below that (BB, CCC, CC, C) is considered below investment grade, otherwise known as high yield or "junk." While Moody's considers bonds rated C to be in default, S&P and Fitch save that designation for bonds rated D.
While the fund is actively managed, it is benchmarked to the JP Morgan High Quality Mezzanine Index, which despite the name says it "offers extensive coverage of BBB-B debt tranches, tracking approximately $75 billion... spanning 1,400+ deals and 3,200 tranches managed by 130+ CLO managers." The last part is important because the CLO securities owned by CLOZ are themselves portfolios of loans that have been selected and packaged by the issuer of the CLO. In a way, CLOZ is really a kind of fund of funds product. Indeed, looking through current holdings, you will see names such as Neuberger Berman, AIG, Carlyle, Palmer Square and Bain Capital. Yields on these holdings range from 5% to 11% with maturities ranging from 2030 through 2035.
As mentioned earlier, Panagram seems to have experience in this space given its assets under management at the end of 2021. One thing I noticed on the main company website is that Panagram not only invests in CLOs but also has "participation in both CLO primary transactions as well as active tranche trading in the secondary market." In reviewing fund documents, I did not see disclosures concerning the fund participating in CLO deals where the parent company is the issuer, so that leads me to believe that Panagram will avoid these deals by not placing deals in the fund that are issued by the parent company. One thing that caught my eye was the statement that the issuer has partnered with MMCC, billed as "a vital resource that provides education and enrichment programs, support, and opportunities to more than 35,000 Bronx and Manhattan residents a year."
If you are willing to take a little more risk for a little more return, this fund may be worth a closer look.
