“The risk retention play in CLOs via CLO warehouses can be an interesting strategy for equity investors,” commented Oliver Fochler, managing partner and CEO of Stone Mountain Capital. “By investing in the CLO equity while the CLO is being structured, the investor can get a double-digit (20% per annum) upfront distribution within the first year when the CLO is ultimately sold.” He added: “The structure is complementary to traditional private equity investments, which target back-loaded multiples of 2.5x to 3x.” It is not unusual for CLO equity players to invest in the first-loss piece of the CLO warehouse, and then roll into the CLO equity. Investors also have the option to participate in the warehouse and then choose not to roll into the CLO. However, according to a UK-based investor, CLO managers generally want $10m to $20m for warehouse first loss participation, meaning that it tends to be the larger firms that participate, rather than smaller entities. Nevertheless, Mr. Fochler noted that there are a ‘good number’ of funds cropping up now that will acquire those first loss pieces. “It’s all a CLO equity play,” he said. “[Investors] are buying unrated, chunky and illiquid positions for a long-play strategy.” Interview with Oliver Fochler was covered on 29th March 2017 in Capital Structure under 'Use of sponsor-style CLO retention vehicles to drop; managers weigh alternative risk retention approaches as investors increase allocations to CLO equity strategies' (website requires registration).