More and more UK pension funds are joining specialist markets for high risk, high yield investments. The moves are done to boost poor revenues coming from their traditional investments.
With years of slow economic growth at low interest rates, UK pension funds have started purchasing leveraged loans. Now, the average amount of leveraged loans in fund portfolios are at 2% starting 2013.
While this is a common practice across the pond, as many pension funds and insurance companies have been using them as investments since the 1990s. In the US, nearly 5% of pension fund portfolios are leveraged bank loans.
Some experts though extend caution saying that UK pension funds that venture into these specialized markets are often unprepared for the high management requirements in the investments being undertaken as these often involve hard up companies or homeowners.
These kinds of loans are provided by banks to companies that already have a mountain of debt as well as high risk of default but with it high returns. Many pension funds still steer clear, as the yields do not measure up to the risk being assumed.
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