CLO Performance

Webinar, Spring 2021

Michael Roberts, the William H. Lawrence Professor and Professor of Finance at the Wharton School, presented his working paper CLO Performance. The paper is co-authored with Larry Cordell of the Federal Reserve Bank of Philadelphia and Michael Schwert of Wharton.

John Griffin, the James A. Elkins Centennial Chair in Finance at the McCombs School of Business at the University of Texas at Austin, gave a discussion of the paper, followed by audience Q&A. The webinar was hosted by Chris Geczy, Academic Director of the Jacobs Levy Center.

ABOUT THE PAPER

The authors study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and the corresponding costs. CLO equity tranches earn positive abnormal returns from the risk-adjusted price differential between leveraged loans and CLO debt tranches, rather than managerial skill in selecting and trading loans. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to regulated intermediaries demanding safe assets. Temporal variation in equity performance and management fees highlights the resilience of CLOs to market volatility due to their long-term funding structure and a reduction in surplus over time as the market has grown.

The paper received the 2020 Jacobs Levy Center Research Paper Prize for Best Paper. The research was also featured in a story by Knowledge@Wharton.

Michael Roberts

William H. Lawrence Professor and Professor of Finance, The Wharton School

Bio

Michael Roberts is the William H. Lawrence Professor and Professor of Finance at the Wharton School of the University of Pennsylvania.

His research spans corporate finance, banking, and asset pricing. He has investigated the determination of corporate capital structure and payout policy, and their impact on corporate investment and equity returns. He has also studied the pricing, design, and renegotiation of debt instruments. More recently, he has explored the performance of collateralized loan obligations and their implications for risk to the financial system.

Roberts’ research has received awards including two Brattle Prizes for Distinguished Paper published in the Journal of Finance, a Jensen Prize for best paper on Corporate Finance and Organizations published in Journal of Financial Economics, and best paper awards from the annual meetings of the Financial Management Association and Southwestern Finance Association. Roberts has served on numerous journal editorial boards, including the Journal of Finance of which he was a co‐editor.

In addition to his research, he has won multiple teaching awards instructing undergraduates, MBAs, PhDs, and executives. In addition to Wharton, he has taught at the Fuqua School of Business at Duke University and the University of California at Berkeley.

He holds a bachelor’s degree in economics from the University of California at San Diego, and a master’s degree in statistics and doctorate in economics from the University of California at Berkeley.

John Griffin

James A. Elkins Centennial Chair In Finance and Professor of Finance, McCombs School of Business, The University of Texas at Austin

Bio

John Griffin is the James A. Elkins Centennial Chair in Finance at the McCombs School of Business at the University of Texas at Austin. He has also served on the faculty at Arizona State University, Yale University, Hong Kong University of Science and Technology, and Harvard Business School.

His research focuses on understanding the role that conflicts of interest and misreporting played in the financial crisis. A main field is forensic finance, or understanding the role of anything that is potentially illegal, illicit, or immoral in financial markets. His research has been extensively published and cited in the top finance journals and featured in over 600 media outlets including Bloomberg, the Wall Street Journal, the New York Times, and Financial Times.

Recent areas of study include cryptocurrencies and market manipulation. Griffin’s expertise is in structured finance, credit ratings, international finance, and institutional investments with topics of papers including the financial crisis, manipulation, mortgage misreporting, credit ratings, insider trading, investment banking, cryptocurrencies, corruption, trading behavior, and international finance.

He holds a bachelor’s degree in economics from Baylor University, a master’s degree in finance from Texas A&M University, and a doctorate in finance from the Ohio State University.

Chris Geczy

Adjunct Professor of Finance and Academic Director, Jacobs Levy Equity Management Center for Quantitative Financial Research, The Wharton School

Bio

Chris Geczy has been on the Finance Department faculty at the Wharton School since 1997. He is academic director of the Jacobs Levy Equity Management Center for Quantitative Financial Research and the Wharton Wealth Management Initiative at Wharton Executive Education. He previously worked for the Board of Governors of the Federal Reserve System, Washington, DC in its Division of Research and Statistics.

He currently serves on Intel’s U.S. Retirement Plans’ Investment Policy Committee, is a co-editor of Financial Planning Review, and formerly served on the Editorial Board of the Journal of Alternative Investments and the Economic Advisory Board of NASDAQ. His work has appeared in numerous books and scholarly journals including the Journal of FinanceJournal of Financial EconomicsJournal of Portfolio Management, The Society for Industrial and Organizational Psychology and the Journal of Political Economy.

In 2018, Geczy and co-authors won the Investment for Impact Prize of the Center for Responsible Business at the University of California, Berkeley’s Haas School of Business for their research paper “Contracts With Benefits: The Implementation of Impact Investing.”

He has a bachelor’s degree in economics from the University of Pennsylvania and a doctorate in finance and econometrics from the Graduate School of Business at the University of Chicago.