A growing number of institutional investors are turning to the loans market for diversification and returns. “If you look at large syndicated loans, banks now comprise the smallest section of lenders,” says Neil Wessan, managing director and co-head of the private placements group at investment bank Jefferies.
“Syndicated loans are a nascent asset class that investors are turning to for attractive risk-adjusted yield, diversification, and limited correlation with other investments,” says Peter Gleysteen, former head of JPMorgan Chase’s syndicated loans business. “Hedge funds and other new asset managers have poured into the space. About 70% of leveraged loans are now actually funded by hedge funds, prime funds and CLOs.”
According to Wessan, high-yield mutual fund managers that purchase high-yield bonds are now purchasing high-yield bank loans. “A new type of investor thinking has come about – one who looks at the bond market and the bank-loan market, and compares the various tranches of the capital structure,” he says. “As the yield of a bond falls, the investor would now look at the bank market to see if they offer better value. Bonds and loans are being analysed in tandem, and, in the case of capital arbitrage hedge funds, the differences between capital structures are being exploited.”
