As funds that invest in corporate bank loans proliferate, many investment experts wonder if they are hothouse flowers that will wither in the chill of a serious recession.

"So far they have been great, but think of the economy we've had during this period," said Mike Mortensen, the president of PNC Bank Corp.'s retail brokerage.

Like other observers, Mr. Mortensen said he wonders whether defaults during an economic downturn could send the value of bank loan participation funds plunging.

"These products require an extremely good credit capability within the investment adviser," said Geoffrey H. Bobroff, a consultant in East Greenwich, R.I. "We could have a serious problem for the industry should the credit analysis be faulty."

Another concern: Investors might not be able to pull out of troubled funds right away because, unlike mutual funds, they are redeemed quarterly rather than on demand. And even then the redemptions may be done by allotment, meaning investors might have to wait even longer for their money.

"This is one of those products where you can win a little versus losing a lot," said A. Michael Lipper, the head of the fund-rating business that bears his name.

Bank loan participation funds came into the spotlight recently when John Nuveen & Co. hired the renowned fund manager Jeffrey Maillet from crosstown rival Van Kampen Investments Inc.

Mr. Maillet, who managed $13 billion in bank loan funds for Van Kampen, will run two such funds that Nuveen plans to launch in the coming weeks.

Bank loan funds, which are designed to protect principal while returning high rates of interest, have grown swiftly in the last 10 years. A decade ago there was one such fund, with $480 million; today there are approximately 15, with assets of $28 billion.

Mr. Maillet said the asset class was tested in the recession of the early 1990s.

However, he said, at Van Kampen he bought more than 2,000 loans - with only 27 defaults.

And in those defaults the fund got most of its money back because it was first in line, Mr. Maillet said. When there is a default, the investor always has first claim on the collateral, he added.

Scott Page, a co-manager of Eaton Vance Corp.'s bank loan fund, said unrated loans are becoming a thing of the past-70% of the loans in his $9 billion portfolio are rated.

He said the fund has never had a problem honoring redemptions, even in the early 1990s when it shrank from $2 billion to $500 million in less than two years. Eaton Vance never had to sell a single loan, Mr. Page said.

He added that the company has a 15-person team dedicated to judging the quality of loans Eaton Vance buys.

The funds have proven popular with investors at bank brokerages because of their conservative profile. PNC is thinking about offering one, Mr. Mortensen said.

At Centura Bancorp's retail brokerage unit, at least 10% of sales come from bank loan funds, said Ed Hipp, the president of the brokerage. Mr. Hipp said he is confident his clients are buying a solid product.

"I'm comfortable with the risk," he said, "as long as you stay with folks like Van Kampen and Eaton Vance who are dealing with top credit syndicators like the Chases and J.P. Morgans who know what they're doing."

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