Our Approach
Investment Principles
Lakemore aims to provide stable earnings, enhanced returns and risk dispersion through a methodical, defensive and cycle-aligned risk allocation discipline.
By remaining aligned with broad market cycles, we reduce the unintended consequences of major market declines and remain poised to take advantage of opportunities during periods of extreme volatility.
Through our team’s industry-leading expertise, our long-standing, trusted relationships with leading CLO collateral managers and our strategy of taking super-majority control equity positions, we strive to build and maintain defensive portfolios that can both withstand, as well as benefit from, extreme market down cycles. This has given us advantaged access to top collateral managers enhancing our ability to deploy efficiently.
Our distinctive focus on super-majority control positions gives us the ability to manage the key drivers of risk and return. This enhances Lakemore’s ability to assess and mitigate downside risk, providing stability for our investors.
Our strategy has proven effective as we continue to demonstrate resilience across all market cycles, including all the major market downturns since 2000.
Portfolio Development
Lakemore maintains a fundamental, risk-focused approach to portfolio construction and management.
Our effective, real-time risk and exposure management discipline is centered on investing with top-tier U.S. based CLO collateral managers who demonstrate close alignment with our culture and demonstrate a strong, through cycle track-record of performance. When constructing portfolios, we consider cyclical and secular shifts across industry sectors along with macro-economic trends to ensure robust risk management and long-term portfolio stability.
Our dedicated team focuses on closely monitoring CLO portfolios to assess, manage and control downside risk, allowing us to capture and maintain upside potential. By identifying and monitoring positions across the risk spectrum, Lakemore strives to enhance returns while also seeking to ensure that individual CLO investments will not negatively impact overall portfolio performance as the market evolves.
Key advantages of our approach include:
- Super-majority CLO equity investments allow us to maximize optionality on all key drivers of risk and return;
- Full control of the warehouse ramping process to increase returns and manage downside risks
- Weighted Average Cost of Capital (“WACC”) optimization, and alignment of documentation to balance the rights of all stakeholders; and
- Efficient timing of refinancing and resetting decisions, as well as optimizing exits to mine market opportunities.
CLOs in a Diversified Portfolio
In keeping with our portfolio construction philosophy, our investment approach aims to maximize equity investor optionality by taking full advantage of the opportunities offered in CLO structures, which is further enhanced by our commitment to taking super-majority control equity positions.
We have been applying this investment philosophy since 2000, and have invested in various CLO tranches through all market cycles to provide our investors with stable and predictable cash flow distributions and attractive investment returns through all market cycles.
Depending on where we are in an economic cycle, we invest in CLO Debt or Equity tranches to benefit from supportive market conditions.
Specifically, Lakemore’s CLO equity funds aim to deliver three key components that are valuable on a stand-alone basis and as part of a diversified portfolio:
- Double-digit returns with cash distributions paid on a quarterly basis;
- Increasing IRR outlook during periods of high loan market volatility; and
- Low relative NAV volatility.
Furthermore, CLOs, when arranged and managed well, can provide:
- Stable and predictable cash flow distribution;
- Attractive through-cycle investment returns;
- Cash flow-based risk dispersion in actively managed loan portfolios; and
- Appropriate alignment of investors’ interests from AAA to equity.
Our Team