The largest bond market player in the United States, Pacific Investment Management Company (PIMCO), now believes that private credit investors will have the best opportunities in the coming years since the global financial crisis.
PIMCO stated that a “void in lending markets” has been created, allowing private capital to intervene, as banks have become more cautious about lending because of decreased liquidity and regulatory scrutiny.
The report suggested further that private investors should push for tighter covenants and wider spreads, as well as seize expanding chances to directly refinance companies with more flexible capital structures and buy senior corporate loans at a discount.
“As private credit investors, this is the environment we’ve been waiting for, portfolio managers at PIMCO said in a note. The next few years will be great vintages, we believe, across the private opportunity set for a wide range of investor objectives,” PIMCO remarked, as reported by Zawya.
PIMCO, which oversees USD 18 trillion in assets, started to penetrate markets that were previously dominated by regional banks in 2023. The bond market player has increased the amount of private financing that it offers to failing companies from which banks have withheld credit. All these have happened in a year, when the world’s largest economy saw the downfall of five regional banks, including the likes of First Republic Bank, Signature Bank and Silicon Valley Bank.
PIMCO further anticipates that the reduced liquidity climate will, in particular, present opportunities for private credit investors in senior corporate loans, commercial real estate, and speciality finance, or loans to consumers and small businesses based on collateral.
The asset manager identified specific areas of specialty finance, including aircraft leasing, equipment financing, solar and home improvement loans, and residential mortgage credit, where the private investors will witness growth.
According to PIMCO, there will be chances for private credit to offer this kind of funding to banks and non-bank lenders in addition to borrowers directly.
Furthermore, it stated that ‘investors won’t need to take large risks to generate compelling returns’ because the demand for capital is greater than the supply.
Not only PIMCO, but even the leading global investment firm Kohlberg Kravis Roberts (KKR) sees investing in Asian private credit offering a premium over similar deals in Europe and the United States.
In its latest report, KKR estimated that the ratio of the private equity to private debt assets under management is 30.8 times for the Asia-Pacific region compared with 5.2 times for the US and 3.5 times for Europe.