The operating context for the private equity manager has completely transformed during the last decade and many firms are preparing to migrate their funds as a result.

Buyout firms are now managing US$4.7 trillion of assets and holding almost twice as many portfolio companies in their funds than in 2019, according to Bain & Company figures.

With the buyout industry operating on a completely different scale than 10 years, the demands on the buyout back office have inevitably intensified. This not just because GPs are now responsible for shepherding a larger number of funds, shepherding bigger portfolios, and executing a higher volume of deals. Managers also have to comply with higher investor and advisor demands when it comes to the granularity and timeliness reporting.

The evolution of deal structures, which now include co-investments and continuation vehicle transactions, have placed further workloads on private equity operations, as have the increasing use of fund finance and the growth of the non-institutional investor base.

Time for a change: when to migrate funds

The increasing complexity and sophistication of the private equity business means that buyout managers are now facing an operational inflection point, where the relatively simple operating infrastructure that has served the industry so well for so long now requires an upgrade.

Similarly, long-standing outsourcing partnerships, where outsourcers were only required to provide quarterly fund reports, could now also require a refresh.

It is in this context that a series of trigger points are emerging for buyout managers to take the leap and migrate funds. This is not a decision to be taken lightly – fund migrations are complex, demanding projects that can be at risk of costing more and taking longer than anticipated – but many private firms are now approaching a point where delaying a migration can’t be put off any longer.

Why managers migrate funds

• Poor service: As the demands on outsourcing partnerships have increased, there are more reports of private equity firms citing poor service delivery as a catalyst for migration. Fund administrators still running on legacy systems, using inflexible reporting templates and relying on manual processes have been unable to keep up with the reporting timelines and detail that private equity firms and their investors now expect. This in turn can lead to errors and delays. Managers will expedite migrations when incumbents can’t keep pace with evolving GP requirements, switching to administrators that have the tools and scale to stay ahead of increasing regulatory and reporting workloads.
• Provision of scale: Deteriorating service levels can often be boiled down to a question of scale. Private equity managers have seen huge increases in assets under management (AUM) and in many cases simply outgrow the capacity of incumbent providers and have to move on to providers that have the bandwidth to grow with a manager over time and handle rising transaction volumes and a wider array of fund structures.
• Keeping costs down: Private equity managers are facing the most challenging fundraising market since the 2008 financial crisis, with private equity fundraising down 17% year-on-year in H1 2025, according to PEI figures. It has been essential, then, for private equity firms to run fund operations as efficiently and cost-effectively as possible and delivering value for money for LPs. Indeed, a Preqin survey found that well over a quarter of managers (29%) see pricing and fee transparency as a key catalyst for changing fund administration provider.
• Up-tiering technology: The requirement to upgrade technology stacks and transition onto best-of-breed industry software packages will be a driver of fund migration for private equity managers, who are increasingly relying on fund administration partners to not only act as a provider of outsourced fund reporting services, but also a first point of contact for advice on the choice and implementation of technology. Preqin’s survey found that close to a fifth of managers change fund administrator because of technology.

How to choose a new fund administrator

The reasons that trigger a fund migration will also shape what a private equity manager wants from a new fund administration provider.

The ask will vary from manager to manager, depending on investor base, current gaps in in back-office operations, technology requirements and geographic footprint.

There are nevertheless a set of core themes that will inform fund administration selection in most cases:

• Asset class expertise: Experience and track record in private equity matter. GPs will expect their fund administrator to have deep private equity expertise. Geographic reach is also important. GPs want fund administrators to be close to the specific LP communication, reporting and fund structure preferences in all key global markets, and to have teams on the ground where investors are active.
• Exceptional technology and data capability: Technology is viewed as the single most valuable lever for making private equity back-offices more efficient and for meeting increasing investor demands. The sophisticated investors will have a firm working knowledge of the asset-specific software programs, including Allvue, eFront, Private Capital Suite (formerly Investran) and Yardi, and able to advise on the technology stacks suited to each client’s bespoke requirements. Managers also expect fund administrators to facilitate seamless integration and interoperability between the private equity firm’s core back-office infrastructure and third-party data providers. Fund administrators should also be able to implement cloud-native operating models, have an eye on the developments around self-service data for clients, and meet the highest cyber security standards and certifications.
• Operational model flexibility: A change of fund administrator also opens an opportunity for private equity GPs to review operating models, and to transition to an operating model that best serves long-term growth ambitions and technical requirements. GPs will favor fund administrators that can provide operational flexibility, whether that be through a classic outsourcing arrangement, a co-sourcing model or a lift out.
• Comprehensive regulatory knowledge: Keeping track of myriad regulatory developments across multiple jurisdictions has become increasingly challenging for private equity to sustain without support, especially for US managers operating in Europe and/or the United Kingdom. Managers are relying on fund administrators to be up to date on all key regulatory developments, range from the Alternative Investment Fund Managers Directive II (AIFMD II), Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) to the Sustainable Finance Disclosure Regulation (SFDR), The General Data Protection Regulation (GDPR). Automated regulatory reporting and compliance is also becoming a more common ask, as managers look for ways to lighten the regulatory compliance burden.
• Service excellence: Responsiveness and service excellence are a must for all GPs, who are now drafting detailed service level agreements (SLAs) with trackable key performance indicators (KPIs) around processing times and reporting accuracy. The best administrators will understand each client’s context and proactive when it comes to addressing client requirements.

A long-term partnership

When undertaking a fund migration, a private equity manager will want the relationship with a new fund administrator to be a long-term one. It is not in GP or LP interests to be constantly having to migrate funds.

As a fund administrator operating at scale Alter Domus has the resources and private equity-specific expertise to grow with clients, maintain excellent service levels and keep client platforms updated with the latest technological tools. We employ 6,000 professionals across 23 jurisdictions and administer US$3.5 trillion of assets and 36,000 client structures.

We have the scale, technology and industry knowledge to not only facilitate smooth fund migrations that cover the shifting requirements of the modern private equity manager but also put platforms and relationships in place that last for the long-term.

Exchange-traded funds (ETFs) composed of collateralized loan obligations (CLOs) have grown significantly in recent years. The underlying CLOs consist primarily of senior secured broadly syndicated loans (BSLs). Although retail investors have had access to BSL funds for over 30 years through open-ended leverage loan mutual funds and for over a dozen years through ETFs, the first publicly traded CLO ETF was launched only in 2020. Prior to this development, CLO investments were predominantly made by institutional investors. This is particularly noteworthy given that historically anywhere from a half to up to two-thirds or more of the US BSL market are held by CLOs[1].

This paper examines the performance of a sample of publicly traded CLO ETFs based on historical returns. The sample encompasses various CLO ETFs that target a range of tranche seniorities, reflecting different levels of credit risk as indicated by their ratings. Additionally, the performance of BSL ETFs, from which we selected a sample, is considered to provide a reference point, given that a CLO tranche is fundamentally a derivative of its underlying BSL portfolio.

Our analysis of the historical daily returns and correlations of the ETFs indicates that over a longer period (such as two years), the risk/return characteristics amongst the ETFs are generally consistent with the underlying risk profile of the relevant ETF – i.e. similar performance levels for similar risks – and moderate correlations. However, an examination of daily CLO ETF returns and correlations over a short volatile period can exhibit a noticeable divergence in absolute and relative performance. These findings indicate that the ‘intuitive’ view that CLOs and BSLs are highly correlated may not be evident until there is significant market volatility. And even in that case, differences in performance indicate that other factors may be at play.

Our analysis found that CLO correlations may be further explained at times by vintage and underlying asset manager exposure rather than just broader BSL market dynamics. We offer additional insights and key factors that can impact the performance between CLO portfolios.

Historical Returns – Data

Our sample of CLO ETFs spans the range of tranche seniorities and the credit ratings scale – from CLO ETFs that focus primarily on senior tranches (rated primarily Aaa) to those that focus on investment grade mezzanine tranches (rated from Aa to Baa). And even to those that include some speculative grade tranches (Ba). Our study also considers BSL ETFs to acknowledge that CLOs are derivatives of the BSL market.

In this context, the relationship between CLOs and the underlying BSL market could provide additional insight into the performance of CLOs. We also included some other market related ETFs to gain additional insight as to the performance of the BSL and CLO markets relative to the broader capital markets. Thus, the selected ETFs can be grouped into three categories: BSL, CLO and other broader markets.

BSL Category

We selected four BSL ETFs that are managed by well-established asset managers and have benchmarks to broad BSL indices.

Table 1: List of BSL ETFs

CLO Category (BSL-Derived)

We selected a variety of CLO ETFs that invest in CLO tranches across the CLO capital structure, and with investments in CLOs across a range of vintage periods and asset managers.

Table 2: List of CLO ETFs

Understanding the underlying ratings distributions gives further insight into the level of exposures a CLO ETF has within a typical CLO capital structure. The CLO portfolios within our sample cover a range of credit risk exposures – from a fund with essentially 100% Aaa to other funds with a broader representation of investment-grade ratings as well as funds with concentrations of Baa/Ba credit risk[2].

Other Broader Markets Category

We also included ETFs that can provide additional perspective on the relative performance of the BSL and CLO markets to the broader capital markets.

In this context, we selected a small cap equity ETF (IWM) since many BSL borrowers would fall in the small cap category; a high yield bond ETF (HYG) since these issuers have a similar credit risk profile (though with different recovery rate and interest rate risks) as compared to BSLs; and a short-term Treasury fund ETF (VGSH) to provide some benchmark of shorter-term risk-free interest rates.

Looking at Financial Performance

We focused on the risk-return and correlation characteristics across the ETFs. We looked for insights into how the ETFs performance behaved with one another within the same category (‘intra-category’), and across categories (‘inter-category’) over different time periods. We observed that both intra-category and inter-category performance and correlation metrics depended heavily on which period we selected. We found that during the most recent market volatility (April 2025), patterns emerged that were not so evident during calmer periods.

In some cases, the correlations we observed between the BSL and CLO ETFs were not as consistent as expected. Understanding that CLOs are derivatives of the BSL market, we initially expected to see a relatively higher degree of correlation across all market environments, but the correlations across all market environments varied. This observation suggests that not all CLOs track the same broad ‘BSL market’.

We also found that CLO performance could be influenced by unique factors related to range of vintage periods of when the underlying CLOs were issued and the overall exposures to common CLO asset managers.

These findings show that these variations across CLO portfolios can offer an opportunity for CLO investors to diversify their BSL and BSL-derivative portfolios to better optimize their specific risk-return objectives. In other words, not all BSL and CLO ETFs are alike.

Historical Performance – ‘Normal Times’

We chose two distinct historical return periods to begin our comparative analysis. One that we could classify as a ‘normal’ period and the other as a ‘volatile’ one. We chose the month of April 2025 as the volatile period. This period reflected significant market volatility due to the rapidly changing global trade outlook and economic uncertainties associated with the related US tariff announcements.

We selected the two-year period from April 2023 through March 2025 as a proxy of ‘normal market conditions’ and can be considered somewhat as a benchmark. Exhibits 1 and 2 show the historical return statistics and correlations of daily returns for each of the ETFs, respectively. Note that two of the ETFs in our sample were not in existence for the full two year-period analyzed. Thus, summary stats are not available, and correlation stats apply only for the respective period that each of these two ETFs was in existence.  

We note that the return and risk characteristics across the ETFs are generally as expected within each investment category and subcategory. For example, among the BSL ETFs we note that there is no material distinction among the standard deviations and coefficients of variation. Among the CLO ETFs, the riskier CLO ETFs with lower rated tranches show higher volatility and coefficients of variation as compared to those CLO ETFs with higher rated tranches. The high yield bond ETF was the most volatile among the credit-sensitive ETFs. As expected, the small cap stock ETF was the most volatile while the short-term Treasury ETF was the least.

During ‘normal times’ NONE of the observed correlations were assessed to be Strong or Very Strong. All the correlations were assessed to be in the Moderate and Weak/Very Weak categories. Only 4 of the 22 observed correlations were assessed as Moderate while the remaining 18 were Weak / Very Weak. Three of the four that were Moderate, were related to the BSL category – BSLs to: BSLs, HY Bonds, and small cap stocks, respectively.

These observations suggest that during normal times, the correlations were not particularly significant for the CLO ETFs. Furthermore, CLO performance did not appear to be materially correlated to other credit risk assets, including the BSL market. Even within the CLO category, correlations were relatively marginal across the CLO capital structure, which suggests that movements in CLO tranche risk premiums seem to be more idiosyncratic during stable markets. These results are not surprising given that the CLO tranches are supported with credit enhancement – unlike CLO equity tranches, which we would expect to be more sensitive.

Exhibit 1: ETFs historical return statistics (April 2023 – March 2025)         

Exhibit 2: ETFs Historical Daily Return Correlation Matrix (April 2023 – March 2025) 

Exhibit 3: ETF Categories Historical Daily Return Correlation Matrix (April 2023 – March 2025)

Historical Performance – ‘Volatile Markets’

As previously explained, we defined the ‘volatile’ period to be the month of April 2025, a period of significant market volatility. Exhibits 4 through 6 show the various historical return statistics for the ETFs during this period.

One can immediately notice the significant jolt in the related risk statistics for all ETFs and the correlations among them. Below are some noteworthy observations based on the comparison of risk statistics between the two periods.

• CLO ETFs experienced the largest increase in risk measures, measured both by volatility (4x to 11x increase) and the range of daily returns (1.5x to 4x higher).
• BSL ETFs experienced roughly a 4x increase in volatility and about a doubling of the range of daily returns.
• Traditional ‘risk’ asset categories of high yield corporate bonds and small cap stocks did not show as much of a relative increase as the BSLs and CLOs – a relatively modest 2x increase in volatility and a 50% increase in range of daily returns. These asset classes, albeit riskier as they are typically subordinated relative to BSL, are more liquid and established markets. For the short-term Treasury ETF, the risk performance in April 2025 was relatively indistinguishable than during the ‘normal’ period.

With respect to correlations, our observations show a sharp increase. Whereas during ‘normal’ times, correlations are not meaningfully significant, this changed during ‘stressed’ markets –  half of the observed correlations are now assessed to be Strong and Very Strong (11 of the 22 observations) whereas 3 of the 22 are now Weak/Very Weak.

While correlations increased substantially, there were still some areas of divergence in performance that are worth noting. For example, the CLO ETFs such as the higher rated investment grade CLO ETFs show moderate correlations to all other asset classes. This implies that CLO ETFs may offer some diversification benefits (especially as you move up the capital structure associated with greater credit enhancement) even in stressed markets. However, the CLO ETFs with lower-rated tranches did show very strong correlations to the ’risk’ assets, but that is to be expected given their tranches’ higher degree of credit risk exposure associated with lower levels of credit enhancement.

Exhibit 4: ETFs historical return statistics (April 2025) 

Exhibit 5: Historical Daily Return Correlation Matrix (April 2025)

Exhibit 6: ETF Categories Historical Daily Return Correlation Matrix (April 2025)

Other Observations

A detailed attribution analysis of the underlying CLO ETF performances is outside the scope of this paper. However, we performed some high-level reviews of the CLO portfolios to look for potential factors that could affect the performance of the CLO ETFs and help explain some of the correlation behavior CLOs experienced, especially during the ‘volatile’ period as CLOs appeared to exhibit lower intra and inter correlations than the other asset classes.

Additional factors beyond market considerations appear to emerge when we look closer at the CLO portfolios. In addition to diverse capital structure exposures, we observed that the CLO ETFs had relatively diverse CLO vintage exposures. While exposures to common asset managers across the CLO ETFs could be significant, we noticed that the exposures were often across various CLO vintages of common managers.

Investing across CLOs with unique asset managers can provide diversification benefits despite targeting the BSL market. Different managers may have varying investment styles, strategies, size (or AUM), as well as industry/sector and credit expertise.

Notwithstanding the fact that a CLO portfolio may consist of several CLOs managed by the same entity, there can be advantages from diversifying across vintages. CLOs can be executed under different market conditions and potentially with variations in reinvestment criteria, even given identical CLO portfolio managers. Furthermore, CLOs from different vintages may be at various stages in their lifecycle, such as the reinvestment or amortization period, which also affects the level of a CLO’s reinvestment activity, as well as being past their non-call period, which can indicate the degree of potential refinancing activities.

Conclusion

ETFs composed of CLOs, with underlying BSLs, have experienced significant growth in recent years. While retail investors had access to funds of BSLs for over 30 years, the first publicly traded CLO ETF was introduced in 2020. This is noteworthy since a large part of the BSL market is held by CLOs and thus offers a broader group of investors to participate in the BSL-derived market across various risk/return profiles.

This paper analyzed the performance of CLO ETFs based on a sample of historical returns. The sample included different ETFs that target a range of CLO tranche seniorities, representing varying levels of credit risk. The performance of some BSL ETFs was also reviewed since the performance of a CLO tranche is essentially derived from its underlying BSL portfolio.

Our analysis of the historical daily returns and correlations of the ETFs show that over a longer ‘normal’ period, co-movements in performance are moderate and the risk/return characteristics across the ETFs are generally consistent with their underlying risk profile. However, CLO ETF returns and correlations can exhibit a noticeable divergence in performance and increase in volatility over a shorter period of extreme uncertainty. An example of which was during the recent period of market fluctuations caused by the US tariff announcements.

We also found that CLO correlations can be explained further by key factors such as the distribution of exposures to: (1) seniorities of the CLO tranches, (2) the vintage periods of when the CLOs were issued, and (3) asset manager overlap within a CLO ETF portfolio.

The bottom line is that CLO ETFs appear to offer investment diversification benefits and that not all CLO ETFs are the same, even given similar credit risk. While performance may appear to converge during stressful times, key differences in performance is also evident.

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[1] Guggenheim Investments research dated December 7, 2023 – ‘Understanding Collateralized Loan Obligations’ (https://www.guggenheiminvestments.com/perspectives/portfolio-strategy/understanding-collateralized-loan-obligations-clo) and FT Opinion On Wall Street dated June 7, 2025 – ‘The trend strengthening the hand of big credit houses’ (https://www.ft.com/content/b5693e95-3a89-4df0-a1f8-ad3e70338458).

[2] Although some of the CLO ETFs may report CLO tranches that are “not-rated”, this is not technically correct in all cases since some ETFs generally report ratings only from the two largest and widely recognized NRSROs. Nonetheless, “non-rated” tranches may still be less liquid and more volatile given the absence of a rating from one of the two largest NRSROs, but likely to offer higher yields.