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After 2-Month Slide, Assets at US Leveraged Loan Funds Jump in January

US loan fund AUM

After a lackluster stretch during the second half of 2017, U.S. loan fund assets under management grew by $1.82 billion in January, benefiting from the largest retail investor cash inflow into the asset class since May and a resurgent secondary.

As of Jan. 31, loan fund AUM was $158 billion, the most since August 2014, according to Lipper and LCD.

There were two main reasons for the renewed asset growth:

  • Retail investors returned to the U.S. loan market in January, prompted by a rising base rate underlying the asset class: LIBOR recently topped 2%, the highest it’s been in nine years. Helping that sentiment, the broader capital markets remains relatively bullish regarding Fed rate hikes, which typically benefit a floating rate asset class such as leveraged loans. The consensus continues to have three rate hikes in 2018, and market chatter regarding a fourth rate hike before 2018 ends is emerging (the odds of such a move are currently roughly 30%, according to CME Group)
  • The leveraged loan secondary improved by 63 bps in January, boosting loan fund AUM by a hefty $1 billion, according to the S&P/LSTA Loan Index (of course, investors continue to struggle to put all that cash to work)

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