Proprietary CLO analytics
CLO trades are informed by SIGNAL’s own analytical lens. The founders had grown frustrated with archaic CLO technology Intex used at DB. “We collaborated with a tech firm and some developers to build a proprietary system that enables faster reactions, providing one source of edge. This is especially helpful in Europe where large passive owners of CLOs are generally much slower movers, but occasionally become forced fire-sellers,” explains Waring. “We invested a lot of time and money in our proprietary platform, which is unique to us. We model and analyze cashflows in a specific way and do not think other firms are doing the same thing. “Our proprietary API-coded formulas create bespoke proprietary analytics on top of the basic package,” says Jain.
CLO restructurings, resets and refinancings
When dislocations create oversold situations, it is more worthwhile to quickly take advantage of valuations rather than spend time waiting to try and restructure a CLO. In calmer markets it can be worth trying to eke out extra value by tinkering with CLO structures. “Even after 2019, markets were calm 75% of the time so we looked at smaller issues, sought complexity premia, and did some CLO restructuring,” says Jain.
SIGNAL does not necessarily always have, or need, majority control of CLO equity to effect changes such as restructurings, resets or refinancings. “Our view is that investors will generally do what is economically rational. SIGNAL maintains good relationships with CLO managers, although collapsing a structure before the manager’s intended maturity date has occasionally been in the best interests of investors. SIGNAL does not want to compete for AUM by taking control of collateral to reissue it. “When we have collapsed CLOs, it is generally better to just sell into the market,” says Waring.
Two bank dislocations in 2023
Thematic dislocations can sometimes shift to banks. After Credit Suisse failed, AT1 CoCo paper sold off, and SIGNAL swiftly took advantage with two relatively conservative trades: senior debt of Credit Suisse before resolution, making a 1.3x multiple and 100% IRR over a few months, and AT1 claims after resolution, making a 2x multiple and above 100% IRR over about a year. These were short term trades and SIGNAL has not been involved in litigation or ICSID arbitration.
SIGNAL has also been active in the UK’s challenger bank, Metro Bank, buying senior non-preferred bank debt in October 2023 before the capital raise, adding to the position and selling in November 2024 for a 2x multiple and over 100% IRR.
Aviation dislocations from Covid and Boeing
“We look for thematic dislocations based on the supply of aircraft,” says Waring. Aviation paper has had two major dislocations over the past five years. Firstly, Covid provided an entry point for an American Airlines Enhanced Equipment Trust Certificate (EETC) in November 2020 around the vaccine news. Then Boeing’s supply chain and technical issues and crash created a good buying opportunity for junior aircraft ABS in 2023. Incidentally, aviation exposure explains most of the USD denominated breakout in the newsletter; there is no exposure to US CLOs, or single names.
ABS
In late 2025 Bank AT1s are an example of an asset class where spreads are tight, and SIGNAL is avoiding most ABS and RMBS for the same reason, simply because it does not meet their return targets. “CMBS has been an exception, but it has been hard to find the right opportunities,” says Waring.
Hedging and leverage
Shorts are mainly to protect capital rather than generate alpha. “We want to avoid anything that could cause a large drawdown, such as leveraged trading in tight spreads. We can hedge credit and interest rates against big tail risk moves, but may not be hedged all the time,” says Jain.
Hedges are fluid because the share of floating rate exposure and need for rate hedges can vary over time. “We are not programmatically investing for spreads. We are looking for dislocations that arise for different reasons, such as Covid or technical LDI, when we might have more single name debt. The fund changes shape over time and we do not have much floating rate exposure in October 2025,” says Waring.
SIGNAL has access to repo and prime broker leverage but would only apply balance sheet leverage to senior CLO tranches, and even then, not above 20-30% of NAV; it peaked at 40% over the past four years. Some other funds may be using 200-300% balance sheet leverage. CLO equity entails implicit leverage, but the leverage is not marked to market and is non-recourse. “It cannot be foreclosed on, so we cannot become a forced seller. If loans drop five points, we do not have to post more collateral. A mark to market sell-off can even be positive if it allows huge 30% dividend income to be reinvested at lower prices,” points out Waring.
Outlook
Waring and Jain are increasingly constructive on the opportunity set, with higher yields available across income streams where loan-spread tightening appears to have stabilised and the balance of probabilities points toward future widening.
Beacon is receiving a lot of coupon income from their carefully selected CLO equity positions and expanding the single name book, while keeping an active eye on where the next round of dislocations will appear.
