Eaton Vance, Merrill Raise $900 Million for New RetailOfferings

Eaton Vance Corp. has completed an initial public offering of its new closed-end fund, Eaton Vance Senior Floating-Rate Trust, raising $600 million in the process, while Merrill Lynch has also collected north of $300 million in its latest retail loan participation fund offering. More than $1 billion will be put to work by Eaton Vance, as the fund also expects to use leverage to increase its buying power.

Both offerings highlight the increased interest in the retail loan participation market of late. Don Cassidy , analyst at Lipper , noted that Merrill's latest launch, in particular, is a reflection of the growing interest in this sub-asset class. "This is a pretty good number in the overall context [of the market]," he added. Cassidy also noted that with interest rates still at very low levels, Merrill's fund probably appealed to retail investors' that are looking for some alpha, but want to remain in a product they consider relatively safe.

Recent launches include Four Corners Capital Management 's offering, The First Trust/Four Corners Senior Floating Rate Income Fund, which launched in September and has raised more than $90 million in assets. Eaton Vance also launched a closed-end offering earlier in the year drumming more than $2 billion in assets. "There is strong evidence that retail investors are yield hogs...and they gravitate to high-yield products," Cassidy added. According to Morningstar , bank loan funds are up on average 6.22% year-to date.

Cassidy said newly launched loan participation funds--loan funds launched in the last couple of years--were also more popular than their predecessors because they have hindsight. Coming out of a period of defaults, many new funds have avoided buying into troubled sectors, such as telecom. "The funds that have come out since mid-to-late 2001...have learned from other peoples mistakes," he added.

Loan participation funds, especially closed-end offerings, have become viable alternatives to money market funds and also serve as a natural hedge against interest rate increases, said Richard Hrvatin , an analyst at Fitch Ratings . He added that Fitch has seen an uptick of fund launches in the past year. "We have rated dozens in the last several months," he added. But Cassidy cautioned about the long-term popularity of these funds as he is of the belief that the current rebound in the economy will not be a long-term play. "We are on the upswing but I don't think it is going to be a huge upswing," he added, noting that certain signs also point to a possible softening of the economy in 2004.