Category: Alerts

Alaric Compliance Alert: Compliance Implications for CLO Managers

The article “Compliance Implications for CLO Managers” by Guy F. Talarico and Joseph DiBartolo of Alaric Compliance Services, LLC was published in the February Issue of NSCP Currents. In 2018, Collateralized Loan Obligations (“CLOs”) were the biggest buyers of leveraged loans. “More than $121 billion of US CLOs have been raised as of November 23, just behind the all-time high of $123.6 billion in 2014, according to LPC Collateral data. An additional $146 billion of CLOs have been reset, refinanced or reissued in 2018 to date.” The question you may be asking is what are CLOs? And, how did they grow to become a major provider of capital to U.S. companies?


Collateralized Loan Obligations
CLOs are structured vehicles that issue long-term debt and equity to finance the purchase of a portfolio of, primarily, senior secured bank loans from a diverse range of borrowers—which could include over 200 issuers.

Compliance Implications
Due to the nature of CLOs and underlying investments involving bank loans and similar investments, firms registered with the SEC must adapt the Investment Advisers Act Rule 206(4)-7 compliance program rule requirements to reflect their firm’s business activities and operations.

The compliance policies and procedures should be customized to the management of CLOs and the recognition of the “hot-button” issues, risks and key differences that distinguish CLO’s from private funds, hedge funds or traditional advisers. These include, but are not limited to, the following:

  1. Credit default risks and compliance with the CLO indenture investment guidelines that are trade-specific;
  2. Obtaining material non-public information and misuse of that information;
  3. Allocations among multiple CLO’s in different life cycles;
  4. Best execution associated with the bank loan markets and the liquidity in the markets and the recognition of conflicts of interests with third-party dealers and other conflicts; and
  5. Impact to compliance policies when investors are unknown to the CLO manager.

These compliance and risk issues might elicit somewhat different approaches when establishing a Rule 206(4)-7 compliance program.

How can Alaric help?
With over 275 years of cumulative financial services compliance expertise, we have managed over 100 regulatory examinations while serving as chief compliance officers. Leveraging this experience, our team of former regulators, lawyers and in-house chief compliance officers can help your firm with meet the regulatory challenges of CLOs and other credit products. Call Alaric today to learn more about our compliance services at 1-888-243-2448 or

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