Private Equity by Paul Gompers;Victoria Ivashina;Richard Ruback;
Author:Paul Gompers;Victoria Ivashina;Richard Ruback;
Language: eng
Format: epub
Publisher: Book Network Int'l Limited trading as NBN International (NBNi)
Institutional Participants
Institutional investors play a crucial role in the syndicated loan market, particularly in the risky leveraged segment of the market where bank participation is very small. Since 2010, about 85% of leveraged loans in the primary market have been funded by institutional investors.18 This number has increased since the 2007–2009 financial crisis, arguably due to greater regulatory pressure on banks, which traditionally retained a fraction of the leveraged loans.
Institutional investors that actively participate in the syndicate include collateralized loan obligations (CLOs), mutual funds, hedge funds, pension funds, and insurance companies, among others. Exhibit 6 shows leveraged loan holdings by investor type. The central point to notice is that over the past 20 years, the leveraged loan market has gradually become dominated by an investor group made up of CLOs, prime rate funds (funds investing in senior secured debt), hedge funds, and high-yield mutual funds (high-yield investors). A widespread shutdown in securitization in late 2007, which also brought CLO issuance to a halt, was a primary driver of the severe contraction in leveraged loan issuance in 2007:Q3, which lasted through 2009. Since then, the issuance volume has returned to its pre-crisis levels, and high-yield investors’ share of the primary leveraged loan market has increased to nearly 81% (its highest point).
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