Babson capital raises $5 bln for riskier bank loan investments

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May 20 Fund firm Babson Capital has attracted $5 billion of new money to invest in high-yield bonds and loans in the past 12 months, as investors turn to higher-risk bank loans to offset weak returns on their traditional fixed-income investments. Babson Capital, which has more than $180 billion in assets under management, now runs $40 billion in high-yield investments after the fundraising, the firm said on Monday.

UK pension funds have started to increase their investment allocations to loans in 2013, attracted by the high rate of return despite the greater risk of default.

Leveraged loans - given by banks to companies and individuals that already have high levels of debt - are currently generating returns of around 500 basis points over LIBOR, the daily published rate at which banks lend money to each other, pension consultants say.

This compares with returns of 1.9 percent on 10-year UK government bonds and 1.36 percent on 10-year German Bunds, Thomson Reuters data shows.