TY - JOUR T1 - Explaining Performance Trends in Leveraged Loan Investments JF - The Journal of Fixed Income SP - 83 LP - 94 DO - 10.3905/jfi.2001.319299 VL - 11 IS - 2 AU - Albert J. Fredman AU - Joseph J. Reising Y1 - 2001/09/30 UR - https://pm-research.com/content/11/2/83.abstract N2 - The risk-reward characteristics of leveraged loans during the 1989–2000 period are analyzed using several statistical measures. A significant portion of the burgeoning $1.2 trillion senior secured loan market, leveraged loans are rated below investment grade. During the 1990s, a secondary market in bank loans evolved, and it became possible to trade loans more efficiently. More accurate mark-to-market pricing succeeded fair value pricing as meaningful prices became more widely available. In 2000, the inherent credit risk in the asset class became increasingly apparent as defaults escalated, and leveraged loan fund returns slid below those of the average money market fund. Controlling for the junk bond cycle, both the returns and standard deviations of leveraged loan portfolios gradually trended downward over 1989–2000 as the market evolved. It appears that investors learned more about the performance of the asset class, and pricing therefore became more efficient. The evidence suggests that future loan returns may not be as generous as those during the 1990s. ER -