9Questions is our Q&A series featuring key decision-makers in the corporate credit markets.
Elmwood, the US CLO manager backed by Elliott, is making its push into European credit at a moment when the asset class is drawing fresh attention from a broadening pool of global investors. 9fin sits down with Aly Hirji, head of European credit and portfolio manager at Elmwood to discuss why he has chosen the firm as the platform for his third European CLO build, and how the firm is navigating a market reshaped by geopolitics, AI-driven sector dispersion and shifting global capital flows.
1. You joined Elmwood to build out its European business at a time when a lot of managers are trying to do the same. What convinced you this platform could genuinely stand out?
Elmwood is a tier one, well-established, large CLO manager in the US, so the chance to be part of that global team, with several day one accretive benefits including investment resources, personnel and systems, is a great starting point for the launch of our European franchise.
Furthermore, our majority shareholder, funds managed by Elliott, has committed significant investment capital both for European permanent warehouses and CLO equity, that should allow us to scale the business efficiently in the coming months and years ahead. Indeed, the long-term nature of our warehouses should allow us to both differentiate ourselves versus competitors in times of dislocations and to construct optimal portfolios to bring to market.
Elliott's support of Elmwood’s European business has also permitted us at inception to hire a senior on-the-ground European team across research, trading, CLO capital markets, operations and compliance. We believe all these elements, coupled with our sole focus on managing CLOs, will allow us to deliver strong and durable investment performance for our investors.
2. You’ve already built a European CLO franchise before at BlackRock — what lessons from that experience are you bringing into this role, and what are you approaching differently this time?
I was also involved in building a CLO business prior to BlackRock too (at New Amsterdam Capital), so this will be my third platform build. Lessons learned start on the investment outcome side. During my 20 years of managing CLOs there have been many unforeseen outcomes on fundamental credit situations, in addition to plenty of high-profile macroeconomic shocks.
Adapting our investment processes to ensure our underwriting standards are rigorous and our positioning appropriate have been front of mind as we get going. We have taken an approach of hiring only experienced analysts to start, whose average length of experience is approximately 15 years, and believe this will assist us to identify and make solid fundamental underwrites for our CLOs.
Furthermore, Elmwood has proprietary portfolio management and relative value tools that we utilise to help construct optimised portfolios. The CLO market generally is awash with data both from an underlying credit perspective but also from a market positioning standpoint. We are embracing technology in unique ways I have not seen before; this includes tailoring portfolio management and trading tools to enhance workflow automation and react to market prices and relative value changes more efficiently. Elmwood’s in-house software development team is a strategic advantage in this regard and our plans for systems are differentiating.
3. There’s been a lot of talk about global investors rotating into Europe over the past couple of years. From your conversations, does that still feel like a strong trend, or has it started to lose momentum?
The CLO market has become more global in recent years and the European market has certainly benefited from getting more attention from global investors, particularly from the US and Japan.
Asset flows, more broadly, will always ebb and flow based on regional macroeconomic views and relative value. However, it does feel that the European CLO asset class continues to see new investors and demand. We are fortunate at Elmwood Europe that we have a large, international investor base within our US platform; given our aligned global investment processes, these investors have been very supportive of our European launch.
4. One of the structural differences for your CLO platform in Europe is the ability to invest more flexibly across loans, FRNs and bonds. How important is that flexibility in today’s market, and how actively are you using it?
CLOs are often viewed as restrictive vehicles given the multiple tests and the rating agency criteria they must adhere to. However, there is a lot of flexibility in the types of asset classes they can invest in, particularly in Europe.
Our job is to use that flexibility to construct the best risk-adjusted portfolios. Therefore, we will be actively managing our portfolios across loans, FRNs and fixed rate bonds, within the limits of our indentures. The recent relative moves in these three asset classes post the Iran war outbreak allowed us to optimise portfolio construction by actively reacting to market moves; at times we saw FRNs underperform loans, and also found interesting fixed rate opportunities given both credit spread and rate moves in that asset class.
5. The European market has a very different sector mix to the US. How much does that shape how you think about risk today, particularly with macro and geopolitical factors back in focus?
Both the US and European markets are exposed to quite similar industries in total, albeit the weights of sectoral exposure by respective region can sometimes differ (notably, software/ technology is a good example of this). There are some sectors which may be absent from one of the regions – the European market has very limited exposure to the oil and gas industry, as an example, whilst the US exposure is more than 2%.
The current geopolitical backdrop will have different implications for regions; the US market is much less reliant on the Middle East for oil and oil derivatives than Europe and particularly Asia. However, the second and third order effects, which are harder to foresee, do ultimately affect all regions in some way. We believe many industry themes become ultimately global in nature, even if they present themselves in one particular jurisdiction first.
Elmwood’s global integration and investment processes help us see those trends amongst regions live, and we are set up to react actively to changes we see.
6. Do you think European credit is actually pricing in the current level of geopolitical risk, or is the market still too relaxed?
Broader risk markets have fluctuated in the way they are attempting to price in the potential effects of the Iran war and geopolitical risks. Initial drawdowns in the equity market and the high correlation with the oil price eventually reversed, with those markets by the end of April pricing in a much more benign ongoing effect. However other markets, notably rates, have had a more sustained move.
European credit markets have remained relatively resilient against this broader backdrop. Loans have been particularly resilient driven by technicals; CLO formation has continued through the Iran war. From our perspective however, the effects of the war will lead to increased dispersion in credit performance and earnings as the year progresses. We have positioned our portfolios quite defensively, in order to take advantages of any opportunities as they arise.
7. Which sectors are you spending the most time debating internally right now?
Recent years have demonstrated that no sector is safe – deemed defensive sectors like healthcare and software have proved to be amongst the most volatile. This reinforces the need to continually challenge sector assumptions and trends across all industries. Clearly, the tech and software industry over the last few months has been very topical and we have found opportunities and continue to actively debate this sector. However, there are other sectors which have been very topical.
Certain segments of the chemicals sector, which broadly has had a challenging couple of years, have been given a boost from the situation in the Middle East and the associated supply disruptions. We are also spending a lot of time on the food sector, given potential implications from the Iran war from reduced fertiliser supply and some adverse global weather conditions evident in recent harvesting periods; these effects will likely be thematic in the second half of 2026.
8. There’s been a lot of debate around software and tech credits recently. Do you think the sell-off has gone too far, or not far enough?
Firstly, it is important to note that painting all software with the same brush is misleading. Whilst the European loan market has an approximate 10% exposure to tech and software, we see this sector as 10 sub-sectors, each with their own risks and dynamics. We have selectively focused on certain sub-sectors and then within those looked to pick the winners.
At the outset of the concerns around AI, we believe the market’s immediate reaction was to get overall exposure down to the broader sector; this led to a lack of differentiation amongst names and some clear relative value opportunities. As at the end of April, we believe the market is pricing in relative risks amongst the sub sectors and individual names more appropriately.
Ultimately, our performance within this sector will be driven by picking the companies who have longevity and sustainable cash flow generation. What is clear is the sector and implications for it are changing rapidly, so we have processes in place to continually challenge and re-underwrite our theses.
9. What do you look for in analysts when building a team?
As mentioned earlier, we have taken a unique approach from inception by only hiring truly senior analysts; there is no substitute for investment track record and experience, and we have sought analysts who have lived through credit cycles and shocks.
We also expect our analysts to have an ownership mindset for their credits that we hold in our portfolios. This, in practice, means they need to be resourceful to stay ahead of the market and have a self-starter mentality to maintain our edge. In a constantly changing market and macroeconomic backdrop we also value analysts who are not afraid to change their minds and react to credit or industry performance, market moves and macro developments.
Finally, Elmwood has historically placed a huge emphasis on culture and creating an environment where individuals are team players and inclusive. We have had the luxury to be able to build the team from scratch in Europe and have also put culture at the forefront of the hiring process. Whilst not often talked about, we believe having the right culture is a significant input in delivering investment performance.
