Pension funds are moving into the market for loans that fund indebted companies and buy-outs as they see opportunities for good investment returns.

In the past six to eight months, US pension funds have allocated money to invest in leveraged loans through funds managed by groups such as BlackRock, Eaton Vance and ING, and special vehicles set up by private equity funds.

Standard & Poorâ??s and others expect the volume of pension fund involvement in the loan market to grow strongly in the months ahead.

Lower demand and expectations of a rise in corpor­ate defaults have driven loan valuations to below 90 cents on the dollar, presenting an opportunity for high returns.