Working Papers

Why do Private Equity Groups Partner with Insurers? with Oleg Gredil (Job Market Paper)

Abstract: We investigate which types of insurers are likely to be targeted by PEGs and analyze how these affiliations affect PEG performance. We distinguish between insurers acquired as “portfolio company” through traditional leveraged buyouts (LBOs) and insurers acquired as “captive”, whose assets are directly managed by PEGs. Our results show that PEGs acquire “captive” insurers with larger capital, and more aggressive investment strategies than “Portfolio Company” acquisitions. These findings suggest that captive insurers provide PEGs with stable, long-duration financing sources to support their operations. To identify causal effects, we exploit two regulatory shocks: principle-based reserving (PBR), which freed up insurer capital, and macroprudential reforms (MAC), which tightened oversight of insurers’ investment. We find that PEGs with captive insurers increase buyout and private credit activities after PBR, but reduce private credit activities following MAC. These findings indicate that captive insurers have become critical financing conduits for PEG growth, especially in private credit markets.

Information and the Design of Financial Securities: Empirical Evidence from Collateralized Loan Obligations (CLOs)  Sole-Authored 

Under Review of JFQA

Presentations: University of South Carolina, Middle Tennessee State University, Eastern FA (2024), FMA (2024), Boca-ECGI Corporate Finance and Governance Conference (2024), SWFA (2025), SFA (2025, scheduled)

Abstract: The collateralized loan obligations (CLOs) market has grown rapidly, with active management of the underlying loan portfolio as a key feature. In this paper, I use CLO managers’ past trading activity to construct relationship measures with the borrowers and lenders of the underlying loans, which are used as proxies for the CLO manager’s informativeness regarding the loan portfolio. I examine how these relationships affect the pricing and structure of CLOs. I find that managers with stronger relationships issue CLOs with a lower yield spread of the AAA tranche and a smaller equity tranche. These findings are consistent with CLO managers using information to enhance the portfolio performance at issuance and/or through active management post issuance. Additional evidence indicates that the post-issuance management of the portfolio is the more important factor in lowering the yield spread on the AAA tranche and allowing for a smaller equity tranche. 

The Pricing and Performance of CLO Bonds with Greg Niehaus and Donghang Zhang

Presentations: University of Cincinnati, Florida State University, University of South Carolina, Baylor University

Abstract: We study the performance of debt tranches of collateralized loan obligations (CLOs). Consistent with CLO bonds having greater systematic risk than comparably rated corporate bonds, we find that CLO bonds provide higher yields at issuance than corporate bonds, on average. Lower rated CLO bonds are underpriced in the primary market more than comparable corporate bonds; whereas, higher rated CLO bonds are not. On the secondary market, traded CLO bonds generate significant positive abnormal returns. Our estimated alpha exceeds 0.3% per quarter for CLO bonds rated A-and-above and is between 0.6% and 1.2% per quarter for those rated BBB-and-below. Our findings suggest that the market recognizes the inherent risks of CLOs, but that secondary market traders earn returns that are not explained by commonly used risk factors.

Monetary Policy Shocks and Systemic Risks of Financial Institutions with Allen N. Berger and Hae Kang Lee

Presentations: University of South Carolina

Abstract: We address three questions about financial institutions, systemic risks, and monetary policy. First, should large insurers as well as large banks be designated and monitored as systemically important? Using systemic risk measures from NYU’s V-Lab, we find that both are systemically important – banks significantly increase systemic risks, while insurers significantly decrease them. Second, how do their systemic risks react to conventional and unconventional monetary policy shocks? Using shocks constructed by Swanson (2021) and Bu, Rogers, and Wu (2021), we find that both banks and insurers have significantly reduced systemic risks in response to monetary policy tightening, consistent with newer research. Third, we question whether bank findings primarily reflect their investment bank versus commercial bank components.  Investment banks persistently generate positive systemic risks, while commercial banks do not.  Commercial bank systemic risks may be more affected by unexpected monetary policy tightening shocks, consistent with their traditional roles in monetary policy transmission.