Investing Across the Spectrum: Part 1
Investing Across the Spectrum: Part 2
Investing Across the Spectrum: Part 4
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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: Leveraging a Unique Capability Across Capital Structure and Risk Spectrum
Images on screen: Commercial office building exteriors
Text on screen: Matt Tuten, Portfolio Manager, Structured Credit
Tuten: Our ability to invest across the capital structure is something that is a differentiated versus almost all of our competitors.
I think it’s just the scale of all the different mandates we have, all the different buckets of capital we have. And so it creates this scenario where we’re a major counterparty for every bank out there across the firm.
And that allows us to source opportunities and see 99.9% of available opportunities out there
We’re a part of a very select few who have that capability to look at opportunities up and down the stack, but also irrespective of what the size of the opportunity is.
Text on screen: Devin Chen, Portfolio Manager, Private Real Estate
Chen: We manage close to $200 billion in commercial real estate assets globally now across public and private markets, and I think there’s real strength to our size, because we’ve got over 280 real estate professionals on the private side sourcing at what I call the grassroots level through real estate industry contacts.
We’ve got Matt and folks on the public side who are interacting and doing business with these large financial institutions on a day to day basis. So we are sourcing from the grassroots level, we’re sourcing through channels that the public side has directly with these financial institutions, and then even at a higher level, we’re able to source at the C-suite level.
We invest across the risk return spectrum. It just really gives us credibility as a real estate counterparty that very few can match.
Text on screen: Finding the Best Real Estate Opportunities
Images on screen: Commercial office building exteriors
Chen: I was thinking about how I interact with Matt on a daily basis. It’s sort of – there’s sort of two main components to it. Matt and his team are a source of ideas in terms of public real estate securities.
But they’re also a source of ideas on the private credit side because they do so much business with these banks. Oftentimes, your counterpart at the banks that deal in CMBS are also controlling the private loans. So Matt and the CMBS desk will see a lot of private loan opportunities, which is especially attractive in the current environment. So some of it is just idea generation from Matt and his team, but the other is, Matt’s a thought partner.
What I mean by that is, whether it’s thinking about how risk is being priced relative value across the capital structure, how deals are being structured – we talk on a regular basis just to compare notes.
I provide sort of that color to Matt, and then Matt also provides what he’s seeing.
Tuten: Information sharing is something that’s incredibly important, because I can give him a sense over what debt investors on the public side are looking for, what they’re valuing, how stuff’s trading, what that might imply for valuations on buildings, where the opportunity set really is, and give them a sense for when they’re pricing their potential investments, how does that compare versus public side debt?
Chen: I would say the culture across the portfolio management team is really to think about getting our investors exposure to real estate in the best risk adjusted manner.
And I think that partially contributes to the collaboration, because we all sort of have that mindset. Like, how do we find the cheapest assets, whether it’s in the public market, whether it’s in the private market?
Text on screen: Responding to a Rapidly Changing Environment During the Pandemic
Images on screen: Commercial office building exteriors
Chen: That was a very unique time. Early days of the pandemic, massive drawdown in markets generally, but particularly the CMBS market.
And of course given our position in the CMBS market, we were seeing all those opportunities. And literally, I remember we had – at the time, we were working remote, because it was the early days of the pandemic, and so we had all our stations set up in our apartments.
I had two screens up. One screen was Matt and the other folks on the CMBS desk, and the other screen was everyone on the private real estate team. And literally, Matt would tell us what bonds that they were seeing and which ones he thought were interesting, and then we would designate who on the private side was going to dig in.
And we had to move fast, because it’s not just about seeing it, but you have to make a decision quickly.
Tuten: It was very unique in the sense of – it was almost like a name your price type environment. And at the time, a lot of what we focused on was the stuff that people were the most fearful of, which was a lot of hotel exposure, because the cash flows went from X to zero overnight, because of quarantines.
So that was a space where we’re on the phone talking about, where were values in 2009, and how does that compare versus the debt we’re looking at now? How bad could it get?
And I think it was a really good example of, they dropped what they were doing, because a lot of the deals fell apart – understandably – and pivoted to working on the public side.
Chen: And yeah, it turned out to be a fantastic opportunity for us.
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Commercial Mortgage-Backed Securities (CMBS).
A word about risk: 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. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses.
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