(Bloomberg) -- Babson Capital Management LLC’s loan fund more than doubled amid surging demand from investors for high-yield floating-rate debt.
Babson Capital Global Loan Fund has raised $4.2 billion from investors, up from $1.8 billion at the end of 2012, Kam Tugnait, a London-based managing director at Babson, said in a telephone interview. The fund, whose investments include debt in both U.S. and European companies, delivered a 5.63 percent return in the first nine months of the year.
“The large inflows this year are driven by the fact that more investors now recognize leveraged loans as an attractive asset class especially in low-growth environment, as it offers better lender protection than high-yield bonds and equity,” said Tugnait.
Money flooding into loan funds has prompted U.S. speculative-grade companies to replace junk bonds with leveraged loans at the fastest pace ever, obtaining about $20 billion this year to repay notes, according to Standard & Poor’s Capital IQ Leveraged Commentary and Data. Floating-rate debt, where rates rise with benchmarks, offers investors a hedge against tighter monetary policy by the Federal Reserve in coming years.
Neuberger Berman Europe Ltd.’s listed loan fund raised an additional 425 million pounds ($683 million) earlier this month, after getting 363 million pounds from investors in March.
Babson, which manages $183 billion, is a unit of Massachusetts Mutual Life Insurance Co.