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Text on screen: Jamie Weinstein, Portfolio Manager, Head of Corporate Special Situations
Jamie: At PIMCO, we believe that tapping into an expanded opportunity set will be key to helping investors pursue their income goals, and one area where we see opportunities is in special situations.
What do we mean by special situations? It's really a broad set of opportunities across different types of markets, primarily within credit, but also things that might be more equity-like in nature, where there's some significant complexity around a situation. If you think about a corporate issuer, for example, it might be a company in transition facing a market dislocation for their goods or services, maybe a change in their supplier base. Could be a problem within their capital structure, with a debt maturity they may not be able to refinance, or a liquidity shortfall that they may be struggling to address. Any type of complexity like that, that requires a solution that may not be available in markets in ordinary course and requires creativity, is what you might think about in simple terms as special situations.
Why are we interested in special situations today? As we think about the backdrop post-COVID of a lot of companies coming off a period where there was dislocation in their businesses, there was a lot of capital formation in markets, some companies borrowed a lot of money to survive, they're now going to need to resolve the issues in their business that maybe weren't fully resolved during the COVID period. In some cases, companies exit this environment with too much debt. In other cases, things changed in their markets, and now they need to invest in a different way in order to catch up. Any of these might present special situations investment opportunities.
A few of the forward-looking opportunities that we're seeing in special situations today, in many cases, one category relates to companies that were heavily impacted which COVID directly, so things in the travel and tourism sector would be one. Another category would be companies were changes in supply chains are significantly impact their profitability or the way they do business. It's obviously well-known and well-reported what's happened across supply chains. Those are just a couple of examples of things that we're looking at over the next 12 to 24 months.
How can investors access this opportunity? What kinds of mandates or vehicles might house these types of trades? There are a few different things. First of all, it has to be vehicles that are flexible and that have a longer-term investment horizon. So typically these are longer lock-up structures, of the like of closed-end funds, or interval funds, or private drawdown style funds, where investors commit their capital for a number of years.
We think there's quite a bit of opportunity across this special situations investing landscape. We continue to source interesting transactions and deploy capital across a number of the different types of ideas that I mentioned, and we continue to deploy resources of our firm in researching and identifying future opportunities.
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Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.
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. Outlook and strategies are subject to change without notice.
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 long-term, especially during periods of downturn in the market.
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.
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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