Connecticut Retirement Seeks Rising Rate Protection in Loan Fund

The Connecticut Retirement Plans & Trust Funds, which manages 15 funds and trusts for the state Treasurer’s office, allocated as much as $150 million to a loan fund run by The Carlyle Group in January to benefit from rising rates, said Chief Investment Officer Lee Ann Palladino.

“The floating-rate coupon is going to help to mitigate against rising rates going forward, particularly given the run in the high-yield market we have witnessed and particularly given the spread compression,” Palladino said in a March 4 telephone interview. “We believe we are at the trough of interest rates.”

The allocation to Carlyle GMS Finance Inc. is Connecticut’s first direct investment in leveraged loans, though existing high-yield managers can buy the assets, Palladino said. Carlyle GMS Finance is a business development company that is currently fundraising with a $1 billion target, according to data compiled by Bloomberg. It provides mezzanine financing in the U.S. middle market and Kenneth Kencel is the company’s president.

Connecticut’s two largest funds, which comprise 91 percent of its $28.2 billion of assets, may increase current allocations to high-yield debt to 5 percent in 2014 from about 4 percent, Palladino said.

The new Carlyle loan investments may produce a net return of as much as 11 percent, Palladino said.

Before it's here, it's on the Bloomberg Terminal.