Investing Across the Spectrum: Part 1
Investing Across the Spectrum: Part 2
Investing Across the Spectrum: Part 3
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Voice-over: From inflation to interest rates, today’s ongoing disruptions present opportunities for investors.
In this series, our portfolio managers explore how PIMCO’s deep expertise across public and private markets gives investors the flexibility to navigate the ever-evolving landscape.
Text on screen: Finding Attractive Opportunities in Distress
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Text on screen: David Forgash, Portfolio Manager, Leveraged Finance
Forgash: We’re seeing spreads back out again, but we’re also seeing levels where the levels of distress and default potential become more attractive to where they’re actually priced.
These are the types of markets that I think we, as a distressed investor, you wait for, and you’re always thinking there’s risks around the corner, and they never seem to appear exactly when you expect. But when they’re there, it creates a lot of opportunity.
Text on screen: Mathieu Clavel, Portfolio Manager, European Private Credit
Clavel: For us, we view distress as a way of essentially buying companies at a discount. And so as long as our underwriting assumptions are correct, and we do a very significant amount of work together with the rest of the firm and all different colleagues and different teams, in order to build conviction on the value of various businesses and their prospects, and as long as we can identify those businesses and create them at a big discount, it’s attractive
Text on screen: Uncovering Opportunities Across Public and Private Markets Through Collaboration
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Clavel: There’s constant communication. Constant communication, constant cooperation, constant sourcing of ideas on both sides. Maybe we’ve looked at a distressed name in the past, have restructured it. The company emerges from bankruptcy, and the new term loans will be very interesting, and I’ll talk to David and suggest potential investments and vice versa.
Our colleagues on the traditional side might have positions in companies that then unfortunately become distressed and at that point in time, we will look at it, work with them on a restructuring, trying to maximize returns and recoveries for investors, so there’s constant cooperation.
Forgash: So our teams are always working together to uncover opportunities.
We had one very recently, it was a large company that owned a bunch of smaller companies, we had insight into a bunch of the different businesses that they were doing, because they’re speaking to the company management.
And Mathieu and the rest of the team brought that up as an opportunity in the public market for us to invest in. Nobody else would have seen those types of opportunities if we hadn’t have been there for the private side as well.
Text on screen: Seeking Optimal Returns
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Clavel: We don't need to make an investment in a certain format. So if the public markets are more attractive, even in the private funds, we can make public investments which offer better risk adjusted returns than the private markets.
Or when we work on a private transaction, we often reprice the loans that we’re making to companies to reflect the evolution of the public markets. And I think that relative value framework is something which is quite unique, and that essentially comes from the fact that we have such large both public and private sector presence.
Forgash: So when we look at things, and we look at them often together, we’re really providing solutions for companies, for private equity sponsors, for sponsors in general. And they can just be a bilateral loan or it could be something that’s a completely bespoke solution.
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All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. 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. Investing in distressed companies (both debt and equity) is speculative and may be subject to greater levels of credit, issuer and liquidity risks, and the repayment of default obligations contains significant uncertainties; such companies may be engaged in restructurings or bankruptcy proceedings. Diversification does not ensure against loss.
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