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Public pensions are devouring private debt because it has so far yielded outsized returns with less risk than stocks. (Photo: Shutterstock)

(Bloomberg) –Public pensions from Arizona to Ohio are seeking to boost their returns by shifting money into firms that extend loans to companies, plowing into an opaque, illiquid market that’s boomed as investors seek out higher-yielding assets.

The Arizona State Retirement System has invested $4.2 billion, more than 10 percent of its assets, with managers such as Cerberus Capital Management, Highbridge Capital Management and Ares Management. The nearly 600,000-member fund has garnered 10.8 percent returns and may invest as much as 15 percent of its assets in the sector, said chief investment officer Karl Polen.

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