07: CLO’s Explained: How they Work and What Drives Returns with Lauren Basmadjian

Join Glenn Schorr as he sits down with Lauren Basmadjian, Partner and Global Head of Liquid Credit at Carlyle, for a deep dive into the world of CLOs (Collateralized Loan Obligations). This episode of Evercore’s Flow of Funds podcast demystifies the CLO market, covering how CLOs are structured, the mechanics of cash flow, the array of risk/return opportunities, and the evolving investor landscape.Lauren Basmadjian draws on her 25 years in the industry to explain how CLOs act as “mini banks,” why the market is so resilient, and which types of investors are drawn to each tranche.Whether you’re new to structured credit or a market veteran, this episode delivers insights into one of today’s most dynamic asset classes.**Episode Timestamped Overview:**00:00 Welcome and Introduction00:16 Lauren Basmadjian Background & Carlyle's Liquid Credit Platform03:01 CLO Structure Explained05:18 CLO Tranches: Risk, Return, and Investor Profiles07:50 CLOs vs. Other Securitized Products09:27 CLO Fees, Resets, and Manager Upside12:13 Scalability and Managing Large CLO Platforms14:12 Banks’ Role & Loan Sourcing15:34 Who Buys CLO Tranches?18:22 Risk Retention & Equity Tranche Limiting Factors20:35 Managing CLO Credit Risk & Recovering from Defaults22:59 Performance, Active Management, and Avoiding Defaults25:06 Structural Protections: OC Test26:12 What Defines "Good" CLO Performance?27:30 Biggest Risks for CLO Investors28:26 Default & Recovery Rates in CLOs29:15 Liability Management Exercises (LMEs) Explained30:43 Risks to Managers—Fees and OC Breaches32:24 Reinvestment Risk & Market Conditions34:03 Major Manager Mistakes and Importance of Position Sizing34:52 Pricing, Returns, and Volatility's Silver Lining37:29 Measuring CLO Manager Performance38:26 Market Growth, Resets, and Industry Dynamics40:01 Direct Lending, Tailwinds, and Supply/Demand Trends42:16 Credit Cycles and Current Portfolio Data44:18 Default Rates: Now and Ahead45:51 Where the Losses Typically Land in CLOs47:32 What Differentiates Top CLO Managers49:13 Carlyle’s Loan Sourcing & Bank Relationships51:23 Marketing Performance and Opportunities for Growth52:33 Looking Forward: Trends and Fee-Paying Opportunities53:55 Speed Bumps & The State of the Software Sector57:40 AI at Carlyle: Real World Applications59:21 What Could Really Change the CLO Market60:35 European Capital Rules & Insurance Investors60:45 One Big Misunderstanding: CDOs vs. CLOs61:02 Wrap Up and Closing RemarksApplicable current disclosures regarding the companies discussed in this video are available at the offices of Evercore ISI: 55 East 52nd Street, New York, NY 10055, and at the following site: [evercoreisi.mediasterling.com/disclosure⁠](http://evercoreisi.mediasterling.com/disclosure%E2%81%A0)