Insights and Opportunities in Asset-Based Finance

Text on screen: David Orazio, Head of Distribution, Global Wealth Management

Orazio: Hi and welcome to our latest private credit update. Today I'm joined by Chia-Wen Teoh, alternative credit strategist based out of Hong Kong and servicing our clients across the APAC region. CW, great to have you with us today.

PIMCO has one of the longest track records in private asset-based finance, deploying over $200 billion worth of our client capital.

Can you tell us why it's such a high conviction view currently at PIMCO in terms of private asset-based finance?

Text on screen: Chia-Wen Teoh, Head of Alternative Sales, APAC

Teoh: Yes, we're very excited about asset-based finance because we're investing into a very large and very attractive opportunity set. By its very nature, asset-based finance is also very diverse, which is interesting from an asset allocation perspective as well.

If I think about just the yield profile that was on offer today, asset-based finance benefits from the elevated interest rate environment. And much of that yield comes from front-end cash flows.

And then finally, by its very name, asset-based finance has got hard assets as collateral, which provides additional downside mitigation, particularly in more turbulent markets.

Orazio: Now, you talked about the diverse nature of asset-based finance, the many sectors within that overarching allocation. Can you talk to us about some of the sectors that we're actually leaning into and we find more attractive?

Teoh: Yes, at the very high level, we like sectors that are backed by strong structural tailwinds. And these would provide more stability, particularly through different economic cycles.

So the one sector we like a lot is the U.S. residential sector where we see long-term structural demand imbalances leading to rising home values, and therefore a very attractive market for lenders to lend into.

Another sector which shows similar dynamics is in aviation finance. There again, we have a long-term structural supply imbalance where the demand for travel today way outstrips the number of aeroplanes that are available for airlines in order to meet that demand.

So in this environment, what we're finding is aeroplane values and aeroplane lease yields are rising and we're able to invest into this market, particularly because we've been investing in aviation for a number of years.

And at the same time, we have one of the best specialist teams through our platform, High Ridge Aviation, who have been in the aviation leasing markets for over 30 years.

Orazio: Now, are there any areas that we're allocating less capital to today or shying away from?

Teoh: Yes, we're generally cautious on parts of the market where the credit profile is weaker. So in that sense, we’re generally very careful about lending or investing into the subprime consumer market where the credit fundamentals may not stack up.

At the same time, we are also very cautious on sectors which don't have the track record of performance through multiple economic cycles. One such example that comes to mind is Buy Now, Pay Later. It didn't exist during the global financial crisis, so it's hard to ascertain the level of stress it could come to in a more adverse or harder lending economic scenario.

Orazio: Thanks CW. We really appreciate your insights today.

If you want to know anything further, please reach out to your PIMCO account manager. Thank you for joining us.

Disclosures

Program recorded on 15 September 2025

IMPORTANT NOTICE

PIMCO and HRA are separate, unaffiliated entities. HRA offers aircraft acquisition and lease management services to PIMCO Funds; however, it does not serve as a manager or have any other relationship with PIMCO Funds. Additionally, HRA is not involved in the offering of interests of any Fund.

Investments in asset-based lending and asset-backed instruments are subject to a variety of risks that may adversely affect the performance and value of the investment. These risks include, but are not limited to, credit risk, liquidity risk, interest rate risk, operational risk, structural risk, sponsor risk, monoline wrapper risk, and other legal risks. Asset-backed securities across various asset classes may not achieve business objectives or generate returns, and their performance can be significantly impacted by fluctuations in interest rates. Investments in residential and commercial mortgage loans, as well as commercial real estate debt, are subject to risks that include prepayment, delinquency, foreclosure, risks of loss, servicing risks, and adverse regulatory developments. These risks may be heightened in the case of non-performing loans. Investments in mortgage and asset-backed securities are highly complex instruments that may be sensitive to changes in interest rates and are subject to early repayment risk. Structured products, such as collateralized debt obligations, are also highly complex instruments that typically involve a high degree of risk; the use of these instruments may involve derivative instruments that could result in losses exceeding the principal amount invested. Private credit involves investments in non-publicly traded securities, which may be 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. Additionally, investments in private credit may 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.

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