9Questions is our Q&A series featuring key decision-makers in the corporate credit markets — get in touch if you know who we should be talking to!
Following last month’s CLO wealth management event hosted by 9fin and PGIM, we sat down with panellist Alejandro Gonzalez from JP Morgan Private Bank to discuss why he believes now is the right moment to expand international private bank access to triple-As CLOs. He explains how regulatory changes in Europe are set to unlock the asset class for a broader client base, why floating rate securitised credit looks increasingly attractive, and how a Sichuan cooking class changed his opinion on tofu.
1. Last year marked your first allocation to CLOs for international private bank clients. What made this the right time to enter the asset class?
JP Morgan Global Private Bank clients have invested in AAA CLOs in the US for a long time. The asset class is not new to us, nor to our clients. What changed last year was the regulatory backdrop for international investors in Europe.
Historically, there were very few strategies available internationally that could invest in CLOs, and the ones that did exist often had very restrictive suitability requirements, meaning only a narrow set of clients could access them. The key shift came when the Luxembourg regulator signalled that it would approve strategies focused on AAA CLOs. That effectively opened the door for international private bank clients to access the asset class in a much more scalable way.
So it wasn’t that our appetite or familiarity suddenly changed, it was that the structure finally became possible. Once that happened, we worked closely with one of our partners to bring what we already viewed as a valuable part of the toolkit in the US to our international clients as well.
At the Private Bank, we generally believe that the broader the toolkit available to clients, the better positioned they are to achieve their goals. We’re not saying every client needs to own AAA CLOs, but we do think they are an important addition to the opportunity set.
2. What specifically do you find attractive about AAA CLOs today versus other areas of fixed income?
There are a few things we find particularly attractive about AAA CLOs today.
First, they have essentially no interest-rate duration because the coupons reset very quickly. In an environment where nobody really knows whether rates are going higher, lower, or staying elevated for longer, that floating-rate characteristic is very compelling.
Second, the securitised structure creates a differentiated return stream versus traditional fixed income. Because CLOs are diversified pools of bank loans split into tranches, their correlations to traditional fixed income sectors — whether global aggregate bonds, investment-grade corporates, or treasuries — tend to be relatively low. That diversification can add resilience to a short-duration portfolio.
We also think they play an important role from a liquidity management perspective. Traditionally, clients may use money market funds or short-duration corporates as step-out-of-cash allocations. AAA CLOs provide a third lever within that toolkit. They obviously have a different risk profile, but they also tend to offer a meaningful spread premium over short-duration corporates or cash alternatives, which are often in the range of 50 to 120bps depending on market conditions.
Ultimately, we view them as another high-quality, short-duration income source that broadens the opportunity set for clients.
3. How are you thinking about the macro backdrop for CLO investing today?
For any asset class, there are always going to be headwinds and tailwinds, and securitised credit is no different.
Broadly speaking, we remain constructive on AAA CLOs in the current macro environment, but we also strongly believe this is an area where active management matters. Even though defaults at the AAA level have historically been extremely remote (including through the global financial crisis) that doesn’t mean risk can simply be ignored or assumed away.
When you invest in securitised credit, you’re ultimately looking through to hundreds of underlying loans. A single CLO bond can have exposure to around 200 borrowers underneath it, so the research burden is substantial. That’s why we believe having a manager with a deep research bench and strong analytical capabilities is critical.
More broadly, periods of volatility in securitised credit can create more opportunities for active managers to add value. So, while we’re constructive on the asset class, we think manager selection and ongoing credit work are essential parts of the equation.
4. Where do CLOs fit within a private wealth portfolio?
We view AAA CLOs as another tool for generating income in a diversified way alongside other portfolio holdings.
One comparison we often make is that large banks and insurance companies have long used AAA CLOs as part of their own balance-sheet management. We believe they can serve a similar role for private clients. Not as a standalone solution, but as a complement within a broader short-duration or income-oriented allocation.
Importantly, we are not advocating for clients to be 100% allocated to AAA CLOs. They do carry spread risk, and they behave differently from traditional investment-grade corporates. But that difference is part of the appeal.
For example, short-duration corporates are tied primarily to investment-grade company fundamentals, whereas CLOs are securitised pools of leveraged loans. Because they don’t move perfectly in lockstep, holding both can create a more diversified short-duration allocation.
Over time, there will inevitably be periods of spread widening. Having multiple pools of capital that behave differently can create more flexibility when reallocating across fixed income, equities, or alternatives as opportunities emerge.
It’s also important to distinguish AAA CLOs from mezzanine CLO debt and CLO equity, because they play very different roles within portfolios. AAA CLOs are something we primarily think about within a high-quality, short-duration income allocation. By contrast, mezzanine CLO debt and CLO equity are much higher-volatility, higher-return exposures that we would typically view more as alternative investments.
Those strategies sit closer to a private credit or private equity bucket and generally require a longer investment horizon and a greater tolerance for drawdowns.
5. When clients add CLO exposure, where is that capital typically coming from?
We generally don’t frame portfolio construction in terms of “replacing” one asset with another. At JP Morgan Private Bank, everything starts with a goals-based framework built around clients’ spending, lifestyle, and long-term wealth objectives.
That said, what we have seen recently is clients rotating out of cash-like instruments as rates have declined. In Europe and increasingly in the US, clients are no longer earning the same yields in deposits or money market funds that they were previously.
As those cash instruments mature, some clients are reallocating into AAA CLOs because they can still earn an additional spread pickup, as mentioned, often around 100 to 120 basis points over cash, while remaining within the AAA-rated part of the market.
So rather than replacing one specific asset class, we’d describe it more as an evolution within the broader liquidity and short-duration allocation.
6. Manager selection is especially important in CLOs. What do you look for when evaluating managers?
At J.P. Morgan Private Bank, we evaluate managers through what we call the “four Ps”: people, philosophy, process, and performance.
That framework applies across all strategies, but it’s particularly important in CLOs because the asset class has grown rapidly and there are now many managers entering the space.
One thing we pay close attention to is whether a manager truly has the capabilities they claim to have. Just because someone launches a CLO fund doesn’t necessarily mean they have the infrastructure, research depth, or experience required to manage the strategy effectively.
For example, when we were evaluating managers for our global CLO strategy, we found that many firms had strong capabilities in either US dollar CLOs or European CLOs, but not necessarily both. While the structures may look similar, the underlying loan markets are actually quite different in terms of sectors, borrowers, and market dynamics.
We want managers with demonstrated expertise across both regions because we believe a global opportunity set gives portfolio managers greater flexibility and, ultimately, the potential for better client outcomes.
More broadly, we try to stay disciplined and grounded in the four-P framework rather than chasing whichever asset class or strategy happens to be “of the moment”.
7. How are you accessing the CLO market in practice?
For our international private bank clients across Latin America, Asia, and EMEA, the most efficient structure has been a UCITS mutual fund.
That’s a format many of our clients are already very familiar with, and it also allows them to benefit from broad diversification. Through the fund structure, clients gain exposure to many underlying bond holdings rather than trying to build a concentrated direct portfolio themselves.
In fixed income, minimum denominations matter much more than they do in equities. So pooling investors together through a mutual fund can create a more diversified and efficient implementation than trying to build individual accounts with direct tranche exposure.
We wouldn’t necessarily frame it as “easier”, but the mutual fund structure does allow clients to access diversified exposure in a practical and scalable way.
8. What misconceptions still exist around CLOs, and what risks should investors understand better?
One of the biggest misconceptions is the idea that AAA CLOs are somehow a “perfect” solution simply because they carry a AAA rating.
At the end of the day, the underlying collateral is still made up of leveraged loans to below-investment-grade companies. Even though the securitisation structure provides substantial protection at the AAA level — and historical impairment risk has been extremely remote — these securities still carry spread risk and are still connected to the broader corporate credit market.
It’s important for investors to understand both the benefits and the risks. Just because something hasn’t happened historically doesn’t mean it can never happen in the future.
Another point we emphasise is that AAA CLOs should be viewed as one component within a diversified portfolio, not a standalone answer to every income need.
We also think securitisation as a concept still feels overly complicated to many investors. In reality, once you break it down, the structure itself is straightforward. And given the size of the market which is now well over $1trn globally, it’s an asset class that investors should at least understand, even if they ultimately choose not to allocate to it.
CLOs influence broader credit markets, including leveraged loans and high yield, so even investors who are underweight the space are still implicitly expressing a view on it.
9. Slightly outside of CLOs — any hobbies or interests that people might be surprised by?
I really enjoy cooking, and I just came back from China where I took a Sichuan cooking class in Chengdu while travelling for work.
We learned how to make mapo tofu, dan dan noodles, and a pork shoulder dish, and honestly it completely changed my perspective on tofu. Growing up in Europe and the US, I think I’d only really had bad tofu before, so this was the first time I understood why people love it.
What I really appreciated was how food became a way to connect with people across cultures. Cooking alongside locals and hearing them talk about the importance of the cuisine and how ingredients are sourced was a really memorable experience.
It reminded me that food can be a universal language, especially when you’re travelling and meeting people from very different backgrounds.
