Text on screen: PIMCO
Footer text: PIMCO provides services to qualified institutions, financial intermediaries and institutional investors. This is not an offer to any person in any jurisdiction
Text on screen: What’s happening in the alternatives markets today?
Photo of Jamie Weinstein
Text on screen: Jamie Weinstein, Portfolio Manager, Head of Corporate Special Situations.
Jamie Weinstein: So in the Alternatives market today, a number of different cross currents at play where a lot of things that people would normally come to think that they understand, it's a little bit harder to understand. So a combination of an interest rate curve that’s at a level that we just haven't seen, commodity price movements that have been extremely difficult to forecast at times, and capital flows into and out of certain asset classes pretty violently moving, leading to difficulty in pricing certain types of assets. And you couple that with different forms of liquidity mismatch that's happened, has led to some challenges in different sub-asset classes within Alternatives, and has led to significant price movements that have caused losses for some investors.
All that combined actually creates a pretty interesting investment opportunity for forms of capital that are creative and flexible and able to take advantage of some of these opportunities.
Text on screen: How were PIMCO’s strategies prepared for this?
Text on screen: Gregory Hall, Head of U.S. Global Wealth Management and Private Strategies
Greg Hall: We entered this period with a relatively conservative posture. We were concerned about the aging of the economic cycle and the potential for disruption. Though by no means had we predicted a global pandemic, we were ready and prepared for the unexpected.
And so our portfolios had a less risky bias than they might at a different point in the cycle. We had spent a lot of time working on our financing agreements with our counterparties to make sure that we had access to capital, that we would be able to maintain that access to capital, and most importantly, that we would be able to deploy capital at a time when others in the marketplace might actually be seeking liquidity instead of being able to provide it.
Jamie Weinstein: Our cautious positioning coming into this environment was really gained by insights that we generate across the PIMCO platform through being a part of an investment operation that spans a variety of different asset classes and starts every conversation with a macroeconomic framework that's developed on a centralized basis by the PIMCO Global Investment Committee. It's really that foundation that helps us develop a point of view around timing of when we enter into investments, around the different types of assets that we would buy in different environments, and how we expect them to react on a price basis and performance basis on a go-forward level.
Greg Hall: Really, the development of much of our Alternatives business is based on reacting to dislocation.
Split screen with chevron: TEXT ON LEFT – Our model is designed to identify and react to dislocations, IMAGE ON RIGHT – trade floor with people, Jamie Weinstein at his desk
And we think that our model is quite adept at identifying the possibility for dislocation and then reacting to it, both in terms of reducing risk in advance, and then being able to selectively redeploy risk as the dislocation becomes apparent and then markets move to recover. Many of our strategies derive from experiences we had in the immediate aftermath of the financial crisis where RMBS and whole loan mortgages and CMBS and commercial real estate loans and the buildings themselves were trading at deeply discounted prices. And we developed alternative products to capture that value, but it was an extension of work that we'd already done in the core part of our business.
Text on screen: How are we capitalizing on today’s opportunities?
Jamie Weinstein: Our pipeline is much more active now on what I would describe as middle of the capital structure positions where we can provide rescue financing or recapitalization capital to companies that are pretty heavily impacted by the economic slowdown and by the COVID-related issues in the economy to help these companies get across to the other side and businesses that we think have a sustainable competitive advantage and a reason to be.
Photo of commercial real estate and hotels
Example of that would be within commercial real estate. In this environment, there are opportunities within the debt in commercial real estate—and to some extent within some of what are calledsingle asset / single borrower CMBS structures where we can invest in different parts of those securitizations often at the top, even in heavily COVID-impacted areas like in hotels or in multi-family, for example, where we can get great structural protection and earn outsized returns buying what are generally deemed to be somewhat to fairly illiquid investments but create real convexity for our investors, i.e. return opportunity driven by an ultimate recovery in a pull to par in the part of the structure that we're in.
Greg Hall: Our view in this instance—which is common to PIMCO—is to focus on opportunistic investing.
Text on screen: TITLE – PIMCO’s focus on opportunistic investing, LIST – Return-seeking behavior when prices favor taking risk, Creating resiliency in underlying investments when we see less value
Opportunistic investing to us means a combination of return-seeking behavior when we feel that prices and values in the market favor risk-taking, but also creating resilience in our underlying investments when we feel that those prices maybe don’t.
Benign markets today, of course, can turn into very volatile markets tomorrow. And if you have access to capital, that's the best thing you can do for your clients to make sure that they take advantage of those dislocations. We chose very deliberately to make sure that our Alternatives business and our core franchise were very tightly interwoven. And we did this because we believe that markets are broad and react to each other, and that looked at in isolation it's very difficult to determine the value of an investment. And so we take great pride in the ability of our platform to look across global markets, across multiple asset classes, and to really identify areas of richness and cheapness and then apply that in a relatively consistent manner across different types of investment strategy in order to determine where we truly see value in the marketplace.
Text on screen: What’s next for PIMCO’s alternatives platform?
Greg Hall: The two major opportunity sets that we see unfolding right now are two of the deepest and richest sources of opportunity in markets broadly,
Text on screen: TITLE – Opportunities in the alternatives market, LIST – Corporate credit, Commercial real estate, SUB-LIST (under Corporate credit) – Distressed credit, Capital solutions, Leveraged finance, Collateralized loan obligations
and those are corporate credit and commercial real estate. In corporate credit, we are building out our capabilities as rapidly as possible, not just in our established distressed and capital solutions businesses, but across the corporate credit spectrum incorporating leveraged finance, CLOs, and other areas of the loan market.
Commercial real estate has been for a very long time an integral part of our Alternatives business, and we're very excited and fortunate to be welcoming our colleagues from Allianz Real Estate. We think real estate is a perennially interesting market, both equity and debt, across opportunistic strategies, value-added strategies, core strategies. And we couldn’t be more thrilled to be able to partner so closely with our new colleagues and to deliver solutions to our clients that will be based on the combined resources and experience of PIMCO and Allianz Real Estate.
Text on screen: For more insights and information, visit pimco.com
Text on screen: PIMCO
Past performance is not a guarantee or a reliable indicator of future results.
All investments contain risk and may lose value. Hedge funds, private placements and other alternative investments involve a high degree of risk and can be illiquid due to restrictions on transfer and lack of a secondary trading market. They can be highly leveraged, speculative and volatile, and an investor could lose all or a substantial amount of an investment. Alternative investments may lack transparency as to share price, valuation and portfolio holdings. Complex tax structures often result in delayed tax reporting. Compared to mutual funds, private funds are subject to less regulation and often charge higher fees. Alternative investment managers typically exercise broad investment discretion and may apply similar strategies across multiple investment vehicles, resulting in less diversification. Trading may occur outside the United States which may pose greater risks than trading on U.S. exchanges and in U.S. markets.
The investment strategies discussed herein are speculative and involve a high degree of risk, including a loss of some or all capital. Investments in any strategies described herein may be volatile, and investors should have the financial ability and be willing to accept such risks. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. 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 residential/commercial mortgage loans and commercial real estate debt are subject to risks that include prepayment, delinquency, foreclosure, risks of loss, servicing risks and adverse regulatory developments, which risks may be heightened in the case of non-performing loans. Investing in distressed loans and bankrupt companies is speculative and the repayment of default obligations contains significant uncertainties. Collateralized Loan Obligations (CLOs) may involve a high degree of risk and are intended for sale to qualified investors only. Investors may lose some or all of the investment and there may be periods where no cash flow distributions are received. CLOs are exposed to risks such as credit, default, liquidity, management, volatility, interest rate and credit risk.
CMBS refers to Commercial Mortgage-Backed Securities; RMBS refers to Residential Mortgage-Backed Securities; CLO refers to Collateralized Loan Obligations. REIT refers to Real Estate Investment Trust
The terms “cheap” and “rich” as used herein generally refer to a security or asset class that is deemed to be substantially under- or overpriced compared to both its historical average as well as to the investment manager’s future expectations. There is no guarantee of future results or that a security’s valuation will ensure a profit or protect against a loss.
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.
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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