State Street Investment Management is partnering with New York-based alternatives manager Blackstone to launch a collateralised loan obligation (CLO) ETF in Europe.
The State Street Blackstone Euro AAA CLO UCITS ETF is set to launch later this year, a source familiar with the matter told ETF Stream. The fund will be domiciled in Ireland, according to a legal entity identifier.
ETF Stream previously reported State Street is pursuing ETF partnerships with third-party active managers, particularly in fixed income, where it sees a growing opportunity.
State Street already works with Blackstone in the US on two fixed income ETFs holding a combined $7.5bn, one of which – the SPDR Blackstone High Income ETF - contains CLOs.
CLO ETFs have emerged as a fast growing corner of Europe’s ETF market since the Fair Oaks AAA CLO UCITS ETF (FAAA) launched nearly a year ago.
Since then, Janus Henderson, BlackRock, Invesco, UBS Asset Management, Eldridge and Palmer Square Capital have entered the space, with the latter recently launching Europe’s first passive strategy.
The uptick of entrants has intensified competition, with BlackRock igniting a fee war by pricing its CLO ETF at 0.25%, causing Invesco and Janus Henderson to match the fee with their respective CLO ETFs.
CLOs are securities bundles of debt structured in a series of tranches rated from highest (AAA) to lowest (equity) with loan repayments flowing from the top down.
Wrapping these assets within ETFs has drawn scrutiny for packaging what some view as illiquid private equity loans into liquid vehicles, though a source familiar with the structure previously told ETF Stream AAA European CLOs are in fact more liquid than European high yield bonds.
Blackstone launched an investment trust – the Blackstone Loan Financing (BGLF) - containing European and US CLOs in 2014, though since announced it would wind down the trust in 2023 due to a persistent widening of its discount to net asset value.
State Street has already adopted its third-party partnership model in the US, partnering with Apollo Global Management on a private credit ETF and Bridgewater Associates on a risk parity strategy.
State Street declined to comment for this article.
