Pension Funds Target Private Debt in Yield Hunt

U.S. state and county pension funds are expanding their search for yield beyond junk bonds into less liquid middle-market loans, analysts and investors said.

“In a very low interest environment, 2 to 3 percent returns don’t work. It increases the hole for pension funds,” said Theodore Koenig, president and CEO at Monroe Capital, a middle-market loan investor with more than $700 million in assets under management. “Most of the thoughtful pension funds in the country have started to figure it out.”

Pension funds account for more than 50 percent of Monroe’s assets under management. They accounted for a minority a year ago.

For the first half of 2012, institutional investors accounted for 53 percent of the $6.6 billion primary market for mid-cap highly leveraged loans, up from 45.5 percent last year and a low of 29.4 percent in 2008, according to S&P’s Leveraged Commentary & Data.

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