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Economic and Market Commentary

Opportunity in Focus: Private Credit

Listen to Group CIO Dan Ivascyn discuss balancing opportunities and risks in private credit today, and why selectivity remains key to take advantage of attractive multi-year prospects.

Text on screen: PIMCO

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Text on screen: Ken Chambers, Fixed Income Strategist

Ken Chambers: Let's talk about alternative credit. Banks continue to pull back from traditional lending for a variety of reasons. Just where we're at right now, do we view that as a risk or an opportunity?

Text on screen: Daniel J. Ivascyn, Group Chief Investment Officer

Dan Ivascyn: It's a little bit of both. There were some aggressive trends and themes from an underwriting perspective in this market coming out of the COVID period. And that's true both the private real estate markets as well as the private corporate credit markets. So again, how many challenges there will be, will depend on what the economy ultimately does. But there has been significant credit deterioration in segments of that market, which will create tremendous opportunity for new capital, but also lead to some disappointment across some of those legacy strategies. From a vintage perspective, given that banks have stepped back, given that there is this significant opportunity to provide new capital to more challenged capital structures within this market.

We think this vintage, the vintages over the next couple of years are going to be very, very attractive from a return perspective across the full range of opportunities within the private markets. The one caveat is that you do have a lot of large players in this space appearing to battle over market share and scale. Anytime you have that dynamic in the market, you have to be cognizant of the fact that you could get into a situation where competition leads to less credit protection, more aggressive underwriting. You want to be selective, you want to be careful about capacity management, you want to be in the areas perhaps that are a bit more complex, but less traffic. And that's our mindset in trying to bring our clients value a strong value proposition within these segments of the market.

So some challenges across the legacy space, some still adjustment of pricing in that area, but in terms of new capital deployment over the course of the next two to three years, very attractive opportunities. Great news is that this is a sizable area of the market today. So investors can be patient they don't have to think about deploying money over the course of the next few months or the next couple of quarters. We do think this is going to be a sustained multi-year opportunity.

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Disclosure


IMPORTANT NOTICE

Please note that this video contains the opinions of the manager as of the date recorded, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

A word about risk: All investments contain risk and may lose value. Private credit involves an investment in non-publically traded securities which are subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Investments in Private Credit may also be subject to real estate-related risks, which include new regulatory or legislative developments, the attractiveness and location of properties, the financial condition of tenants, potential liability under environmental and other laws, as well as natural disasters and other factors beyond a manager’s control.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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CMR2024-0123-3342971

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