JPMorgan Hedge Fund Quickly Exits CLO Warehouse Financing
(Bloomberg) -- Palm Lane Credit Opportunities Fund, the hedge fund being liquidated by JPMorgan Asset Management, has already traded out of most of the financing it provided to collateralized loan obligations managers, according to people familiar with the matter, who asked not to be identified because the information is private.
The hedge fund was led by Fahad Roumani. Warehouse capital to CLO managers accounted for 41 percent of the net asset value of the $1 billion fund, according to an internal April newsletter seen by Bloomberg News, with pre-pricing capital accounting for 22.9 percent of NAV and post-pricing capital for 18.4 percent.
Some CLO managers use financing from hedge funds and other lenders when they buy leveraged loan assets ahead of pricing a new CLO deal. These investors provide the “first-loss" piece, shouldering risk during the initial ramp-up phase, which can take months to complete. The hedge funds then expect to be repaid, usually with a decent return when the CLO prices, though some may opt to roll positions into the new issue.
The demise of the Palm Lane fund hasn’t yet had an impact on CLO issuance, which had the busiest August since the financial crisis.
JPMorgan Asset Management spokeswoman Kristen Chambers declined to comment. Roumani declined to comment.
©2018 Bloomberg L.P.