Superannuation funds and fund-of-fund providers are looking to invest in bank loans as a way to shore up their portfolios, according to global fund manager Invesco.
Invesco has approached around 20 superannuation funds and retail fund-of-fund providers with the option of investing for the first time in its US bank loan capability, also known as senior secured loans.
Invesco chief executive Mick O'Brien said the fund manager had received a positive response from the institutional and retail sectors.
"What we're finding, and we wouldn't have found it 12 months ago, people are very interested in it. Before investors were more interested in very diversified fixed income portfolios that might have had some bank loans included, but what we've found in the last week is that people are very interested in the asset class because of the current position and prices in the market," O'Brien said.
"They can see what the opportunity presents. Some clients have already made an investment and many are in the process of thinking about a possible investment."
Invesco senior portfolio manager Joe Rotondo said the market was currently attracted to bank loans because there was a visible and quantifiable downside risk and a good upside opportunity.
"Right now the market is a single B market in terms of risk in the asset class. The loans are senior and they're secured. They are senior compared to right of payment in terms of other parts of the capital structure," Rotondo said.
"This means they generate higher recoveries in the event of default as compared to the recoveries of bond holders."
He also said there was an opportunity for investors to benefit from long-term capital appreciation.
"This is rooted in the fact that loans are trading at about 65 or 66 cents on the US dollar currently and that generates an expected yield to maturity of around 16 per cent. This is unprecedented for bank loans and our view is that it's a great time to enter into the asset class," he said.
