EUROPE - Pension funds are increasingly adding secured loans to their portfolio on the back of "huge" institutional interest in the asset class, said Henderson investment director Maria Ryan.
An active secondary market, and the resultant increased liquidity has led to the growing pension fund interest, said Ryan, who added consultant were now actively supporting secured loans.
“Pension fund consultants are positive on this,” she said. “Obviously they are not advising funds to dump everything into it, but they are advising, say, 10-20% of their portfolio. The growth from institutional investors has been huge, with pension fund interest largely coming in the last year or so.”
Henderson director of loans Julian Green conceded there had been concerns the market might not be big enough to warrant institutional interest, but insisted that was no longer an issue.
“The market is huge. It has been off the radar for a while, but it is back now.”
According to Standard and Poor’s, new issue leveraged loan volumes in the US were US$246bn in 2005, while in Europe they were US$123bn - nearly double the $68bn figure in 2004.
Volumes had reached such a level that institutional investors should now be taking it seriously, said Green, and added secured loans were likely to diversify further over time.
“We feel we can get diversity across a lot of markets without harming value.”
Unlike the US, the secured loans market has largely been bank driven in Europe, but that has since changed, said Green.
“The market has evolved,” he said.
“It is just an attractive asset class full stop. And that is why we are seeing such institutional interest in this.”
Henderson has launched multiple secured loans offerings, including segregated accounts, leveraged vehicles and an unleveraged pooled vehicle.
Green said the majority interest for the pooled vehicle had so far come from UK pension funds, but said European pension fund interest was growing because they were familiar with fully structured fully leveraged products.
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