Risky Loans Aren’t Just for the Market’s Insiders

A common finance joke is about how to name a hedge fund or alternative asset manager. Simply pick from the following: A type of tree, a body of water, a stone, a medieval structure, a historical figure or a Greek word. Mash them all together, add “Capital,” “Partners,” “Management” or “Advisers” at the end, and you’re all set.

I was reminded of this after seeing some of the biggest firms involved in risky corners of the debt markets, both lenders and investors alike. Bloomberg News’s Lisa Lee reported this week about the burgeoning market for middle-market collateralized loan obligations, which are packed with private loans made to highly leveraged mid-sized companies that banks don’t care to lend to. Two weeks earlier, Bloomberg’s Davide Scigliuzzo highlighted how private equity firms were using “recurring revenue loans” to finance buyouts of businesses that are far from profitable.