Following a significant distribution, a government pension plan sought to efficiently deploy capital while evaluating private credit opportunities.
Senior loans, given their strong correlation with private credit, were identified as a preferred allocation, however, they can present trading and settlement challenges.
The pension plan allocated $122 million to the Invesco Senior Loan ETF (BKLN), leveraging its liquidity and efficient access to senior loans.
Following a significant distribution, a government pension plan sought to efficiently deploy capital while evaluating private credit opportunities. Given their strong correlation with private credit, senior loans emerged as a preferred option. However, the inherent trading and settlement complexities of senior loans presented operational challenges. To address these issues, the plan utilized the Invesco Senior Loan ETF (BKLN) to gain efficient and scalable access to the asset class.
Senior loans have historically exhibited a high correlation with private credit, effectively serving as a proxy for private credit exposure, as demonstrated in the chart below.
Source: CDLI, Bloomberg L.P., as of Sept. 30, 2024. Senior loans are represented by the Morningstar LSTA US Leveraged Loan 100 Index. High yield is represented by the Bloomberg US Corporate High Yield Bond Index. Investment grade is represented by the Bloomberg US Corporate Index. Aggregate bond is represented by the Bloomberg U.S. Aggregate Bond Index. An investment cannot be made directly in an index.
This strong correlation positioned senior loans as an attractive option for the pension plan to efficiently deploy capital while evaluating private credit opportunities. However, direct investment in senior loans can present challenges, including extended settlement periods and operational complexities.
BKLN, the world’s largest, most established, and most liquid senior loan ETF in the US,1 can help address these challenges. Composed of senior bank loans, BKLN provides access to the 100 largest loan facilities in the Morningstar LSTA US Leveraged Loan Index. This can enhance liquidity and can reduce settlement and operational risks. Its long track record and institutional focus have made BKLN a preferred vehicle for efficient senior loan exposure.
The pension plan allocated $122 million to BKLN, leveraging its efficient access to senior loans and its ability to serve as a proxy for private credit.
Beyond interim allocations, many institutional investors have maintained significant, long-term positions in BKLN, suggesting its versatility in meeting a range of portfolio objectives. As institutional adoption continues to grow, we believe BKLN is well-positioned to remain a valuable solution for senior loan exposure.
Explore how our ETF capabilities can help enhance institutional portfolios and contact our institutional ETF team to learn more about BKLN and how it has supported institutional investors’ portfolio needs for nearly 15 years.
Our Quality Value Momentum (QVM) Multi-factor Suite of multi-factor indices and ETFs improves the risk-adjusted returns of traditional US equity beta exposure.
In today's economic climate, several macroeconomic trends may create favorable conditions for undervalued, fundamentally strong companies.
Generally strong earnings, growth potential driven by artificial intelligence (AI), and recent regulatory changes are positives for banks.
Want to learn more? Submit a form to get in touch with one of our Institutional ETF specialists.
Important information
NA4631772
Image: Alexander Spatari / Getty
Most senior loans are made to corporations with below investment-grade credit ratings and are subject to significant credit, valuation and liquidity risk. The value of the collateral securing a loan may not be sufficient to cover the amount owed, may be found invalid or may be used to pay other outstanding obligations of the borrower under applicable law. There is also the risk that the collateral may be difficult to liquidate, or that a majority of the collateral may be illiquid.
The Bloomberg High Yield Bond Index covers the universe of fixed-rate, non-investment grade debt.
The Bloomberg US Aggregate Bond Index is an unmanaged index considered representative of the US investment grade, fixed-rate bond market.
The Bloomberg US Corporate Index tracks the performance of U.S. dollar-denominated, investment-grade, fixed-rate corporate bonds.
The Cliffwater Direct Lending Index (CDLI) measures the performance of US middle market direct loans held by business development companies (BDCs).
The Morningstar LSTA US Leveraged Loan 100 Index is designed to measure the performance of the 100 largest facilities in the US leveraged loan market
An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Non-investment grade securities may be subject to greater price volatility due to specific corporate developments, interest-rate sensitivity, negative perceptions of the market, adverse economic and competitive industry conditions and decreased market liquidity.
The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The Fund is non-diversified and may experience greater volatility than a more diversified investment.
Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be reinvested at an interest rate below that on the original bond.
The Fund may engage in frequent trading of its portfolio securities in connection with the rebalancing or adjustment of the Underlying Index.
The Fund’s use of a representative sampling approach will result in its holding a smaller number of securities than are in the underlying Index, and may be subject to greater volatility.
The Fund may hold illiquid securities that it may be unable to sell at the preferred time or price and could lose its entire investment in such securities.
Under a participation in senior loans, the Fund generally will have rights that are more limited than those of lenders or of persons who acquire a senior loan by assignment. In a participation, the fund assumes the credit risk of the lender selling the participation in addition to the credit risk of the borrower. In the event of the insolvency of the lender selling the participation, the fund may be treated as a general creditor of the lender and may not have a senior claim to the lender's interest in the senior loan. Certain participations in senior loans are illiquid and difficult to value.
The Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund's investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind.
Investments focused in a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
The opinions referenced above are those of the author as of July 21, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
This link takes you to a site not affiliated with Invesco. The site is for informational purposes only. Invesco does not guarantee nor take any responsibility for any of the content.
