The Teachers’ Retirement System of Louisiana, the manager of $14.7 billion in public employee pension funds, hired AllianceBernstein LP (AB:US) last week to invest $325 million in global high-yield debt.
The retirement fund reallocated the money, it’s first foray into overseas speculative-grade bonds, to get higher returns in Europe and Asia than are available in the U.S., according to Dana Brown, the system’s director of public markets.
Money mangers are looking further down the rating spectrum and to non-U.S. assets for extra yield as the Federal Reserve has suppressed interest rates in an effort to boost economic growth. The average yield investors demand to hold euro-denominated high-yield notes rather than government securities was 490 basis points Aug. 8, 10 basis points higher than spreads on U.S. junk debt, according to Bank of America Merrill Lynch index data.
“If rates are extremely low in the U.S., and there is some disconnect in credit opportunities in Europe and places in Asia, now is the time to branch out to see what is available,” Brown said. “We’re broadening our diversification.”
AllianceBernstein will be allowed to include senior bank loans in the high-yield investments if the firm “views that is prudent,” Brown said in an Aug. 7 telephone interview.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.
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