Learn more about PIMCO’s approach to alternatives
Where are banks on their ESG journey?
The banks are on a journey, and I think you can see how in the future they will continue to be the conduit for policies and for regulatory change within the ESG sector. Just as capital has improved over the last 10 years, driven by regulation, you can see how the sustainability policies that are driven by the regulator will be facilitated into the real economy via the banks.
If we think there is EUR 4.7 trillion of spending needed over the next 10 years to meet the 2030 targets, EUR 3.5 trillion of that will come through the private sector, and the banks will play a huge part in that.
What are your highest conviction views in private credit right now?
We are transitioning from an environment of low rates and massive liquidity to one of high rates and strained liquidity. We believe this will result in opportunities for flexible capital in asset-based and corporate markets.
We have been incredibly active in specialty finance, having deployed over $165bn in residential and specialty finance markets. We like this asset class for several reasons including shorter weighted average lives (given principal and interest cash flows), downside protection (as it often includes hard asset collateral) and diversification (complement to more traditional corporate direct lending doing portfolios).
On the corporate side, bank retrenchment coupled with regional bank pressures has continued to result in opportunities for more bespoke private lending investments, where we are able to ensure more stringent terms and covenants with attractive return profiles.
Bank retrenchment coupled with regional bank pressures has continued to result in opportunities
What is private credit?
Private credit often refers to non-bank lending, whereby loans are made directly to companies or borrowers.
The growth in private credit has come from both the supply and demand side. With respect to supply (or credit availability), driving factors of growth include regulations and bank retrenchment. As traditional lenders have pulled back, it has created an opportunity for private capital to step in with more direct control over the terms and profile of capital provided.
On the demand side, client allocations to private credit have increased. Private credit can serve as a complement to traditional fixed income and private equity exposures.
Historically, private credit has often referred to corporate direct lending. At PIMCO, we look at private credit across corporate, commercial, residential and specialty finance markets.
You can
watch the interview here
or read her
views below
Private credit tends to refer to non-bank lending, where loans are made directly to companies or borrowers. In this video, Lalantika Medema, Executive Vice President and Product Strategist at PIMCO, explains the concept, the areas of opportunity today and the benefits of using an LTAF (Long Term Assets Fund).
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The growth of private credit is offering a useful complement to traditional fixed income and private equity exposures, says Lalantika Medema
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1 Source: https://bit.ly/3gKn2ZJ
2 Source: https://bit.ly/3H3OXi1
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marketing communication
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Three Minutes With
INTRODUCTION
Video interview
ESG considerations
Environmental impact
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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. or other developed markets. 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. Performance could be volatile; an investor could lose all or a substantial amount of its investment. 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. Residential or 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. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. The use of leverage may cause a portfolio to liquidate positions when it may not be advantageous to do so to satisfy its obligations or to meet segregation requirements. Leverage, including borrowing, may cause a portfolio to be more volatile than if the portfolio had not been leveraged. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Diversification does not ensure against 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.
PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager but not necessarily those of PIMCO, 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. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
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How does the new Long Term Asset Fund structure help UK investors to access private credit?
Long term asset funds or LTAFs are a new investment structure designed to provide a way for a broader base of UK DC plans and retail investors to access private credit in semi-liquid, evergreen structures. This is an area they are under allocated to currently.
As a result, for these investors, it combines private market exposure with the benefits of partnering with PIMCO. These include size, scale, diversification and portfolio construction.
Liquidity management and risk management are also important considerations and ones where PIMCO is able to capture the full breadth of our platform and apply our expertise.
And finally with an evergreen structure, a broad-based approach to private credit provides access to opportunities as the market environment changes.
Long Term Asset Fund
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Opportunities
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What is private credit?
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Introduction
Three Minutes With
Three
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Michael Dicks on the key contributors that underpinned PGIM Wadhwani Keynes Systematic Absolute Return Fund’s double-digit return in 2022
marketing communication
Bank retrenchment coupled with regional bank pressures has continued to result in opportunities
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