Pensions Seek Yield with Junk

Plan managers pour funds into debt of speculative-grade companies, aiming for 8% returns.

U.S. pension-plan managers are pouring cash into debt from the smallest speculative-grade borrowers, seeking to meet targeted 8 percent returns at a time when average yields are at about record lows.

California’s San Bernardino County Employees’ Retirement Association, which oversees $6.1 billion, is poised to recommend investing in a fund from Tennenbaum Capital Partners LLC that exclusively focuses on lending to smaller companies. The New York State Common Retirement Fund, with about $150.3 billion of assets, committed money to funds from Brightwood Capital Advisors LLC and Monroe Capital Partners LP this year.

Bondholder Protection

The index typically rises as investor confidence deteriorates and falls as it deteriorates. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

‘Pulled Away’

About $130 billion of loans that are less than $100 million each are coming due in the next five years, according to Newstar Financial Inc.

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