Text on screen: PIMCO
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Text on screen: Kimberley Stafford, Global Head of Product Strategy
KIM: You touched upon asset-based finance. We've seen emergence and investment grade asset based finance. How has that impacted how clients view that as a compliment to maybe existing private credit portfolios and integrated in the portfolio more broadly?
Text on screen: Christian Stracke, President
CHRISTIAN STRACKE: We haven't found a single client who says, Hey, I want to replace my fixed income allocation, and we have a lot of clients with fixed income allocations. What we've seen is a lot of clients saying, Hey, we see that as banks retreat from a number of areas. They're leaving historically high quality banked credit opportunities. And we would love to take advantage of those alongside our fixed income portfolios.
And so some of the headlines that you've seen recently around the data center deals, what are those? That's just project finance. Yes, they're complicated and they're new and there's innovative, and you have to think about technological disruption. And, but you always have to think about that in project finance. And there's heavy deep structuring.
There's always heavy deep structuring in project finance. What's new though, is that historically a multi-billion dollar project finance deal would've gotten taken down by a lead bank or a set of lead banks and then syndicated broadly across banks and that wouldn't have gone to the market.
That wouldn't have gone out to asset managers. That day is ending. I mean, those days are ending. They're not over, there's still a lot of project finance that's happening at banks, and we're not being, and this is not a message that banks are over and asset managers are next. It's this shift to a hybrid approach.
If you think about these large data center deals, what, they have a lot of duration in them, and banks are much more aware of asset liability mismatch after the fall of First Republic in particular, which was really brought down by asset liability mismatch. Credit Suisse itself had real asset liability mismatch issues. And so banks are much more aware of asset liability mismatch and the duration in some of these project finance deals that they're taking. So they have less appetite.
It's not that they can't do it. Certainly you could put together a set of a couple dozen banks to be able to take down large project finance deals. They just want to steer clear of some of the risk profile that's there. It's not that they're nervous about credit, it's more about duration, spread duration, et cetera. So that's where asset managers need to come in to take advantage. These are very clean credit deals.
They're some of the most interesting risk adjusted returns we've seen in our careers, or I've seen in my career dating back to 1997. And so, and to see that you have some of this very compelling risk adjusted return at a time when spreads are ultra tight out there in the liquid markets, really does speak to the transformation that's happening in the credit markets.
KIM: Christian, you talked about bank retrenchment and how that's going to change, but talk a little bit about how you think the industry will evolve and therefore how we're best positioned to partner.
CHRISTIAN STRACKE: Sure. So the industry is going to evolve along these lines of the public private convergence. And this is, it's happening already. You've heard about it, you've seen it, and then there'll be more and more of that. Asset managers need to be able to provide solutions to borrowers, a private deal, a public deal, something that's somewhere in between that's happening already.
There's a lot of that already. And there will be more and more of that to come. Fixed income's not going to go away. There is a ravenous demand right now for this, for high yield and high income solutions. The fact that real rates are as high as they are, is really a godsend to fixed income and to our clients who need that source of income.
So, fixed income is going to remain very relevant, but it's also going to be a source of strength as we continue to grow out the private and converge between public and private opportunities.
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