Investors are increasingly turning to the European collateralised loan obligation (CLO) market, amid predictions that the continent’s vast collateralized space could grow to €1.2tn (£1bn) over the next five years.
Over the past three to four years, the global CLO market has grown significantly, recovering from the reputational damage that hit mutual funds following the global financial crisis, to reach $1.4tn (£1.1bn) globally last year.
While the US CLO market continues to dominate, attention is increasingly shifting to Europe, where asset managers are launching new operations and positioning themselves to take on new insurance.
According to PitchBook’s latest data on monthly CLO issuance over the past five years, Europe has seen slower growth but still shows a clear upward trend. From 2020 to 2022, emissions were under $3bn per month, rising to around $5bn to $10bn per month in 2024 and 2025.
Looking ahead, the overall European mortgage market, of which CLOs are a part, is expected to grow to €1.2tn over the next five years, up from around €550bn, according to Morgan Stanley research.
Much of this growth in the European CLO market is expected to be driven by changes in EU securities regulations. Changes in capital management are expected to increase insurance premiums in the space “materially,” said Aza Teeuwen, head of asset-backed partnerships and partners at TwentyFour Asset Management.
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Changes in securities regulation, including the Solvency II amendments, are set to lower the capital charge for insurers, particularly for senior companies such as AAA CLOs.
Teeuwen added that the Solvency II reforms are expected to come into force in January 2027, “but we are already seeing insurance companies asking about the asset class, the products, which makes me believe that there is a lot of demand from insurance companies for that product”.
He noted that this is particularly important as insurance remains a small investor base in European CLOs. Only a few French insurers are currently invested, while American insurers are very active, making up about 20 percent of the market. This suggests greater opportunities for new capital inflows, said Teeuwen.
Meanwhile, Mehdi Kashani, head of structured credit at $11.4bn alternative asset manager Arini, said much of the current focus on European CLOs is on certain parts of the capital structure, particularly AAA tranches.
“I think this is where the market sees a lot of value, especially because it is involved in the debt market, and there are other changes in terms of regulatory changes, such as Solvency II in Jan 2027, which will put insurance companies into action,” said Kashani.
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However, growth is not expected to come from banks and insurers alone. Other investors are also entering the market, according to Matthias Alt, partner and head of credit partners at Park Square Capital. The $19bn debt investor recently expanded its senior debt platform with the launch of a European CLO business.
“New investors, especially US accounts, are now offering Europe, which continues to deepen capital,” said Alt. “Therefore, European CLOs have continued to move from a high-quality European product to a global credit allocation.
Rob Reynolds, managing director and head of CLOs at Pemberton Asset Management, also highlighted the potential of the auto industry for growth. The European manager operates a €1.6bn platform and has recently expanded its team with the appointment of Jay Daryanani as managing director within the CLO business.
“The important strength of CLOs is that we are not marked to market. This means that we are not subject to being forced to sell at any time,” said Reynolds. “The focus is on broadly structured, low volatility mortgages.”
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