(Bloomberg) -- Pacific Investment Management Co. is pitching more bespoke and private financing to businesses struggling to raise funds amid high borrowing costs, as the asset manager looks to juice returns from non-traditional lending.
Jamie Weinstein, who helps lead Pimco’s $170 billion alternative-investment business, said in a note Monday that he sees opportunities to lend to companies seeking to shore up capital during these times of economic uncertainty. In a strategy that can be seen as an extension to private credit, Pimco is offering equity as well as debt in complex transactions across the senior and junior parts of the borrower’s capital structures.
“The pipeline for private capital solutions and balance-sheet repair deals is building,” Weinstein said in the note titled “Navigating Credit Markets Today.” He added that the market is lucrative with the potential to offer private equity-like returns but with lower risk.
In a bid to meet growing demand, the California-based firm has been expanding its so-called Capital Solutions business, with the number of portfolio managers focused on private strategies rising 50% to 125 as of end-August since 2020. It’s also doubled the support staff in the business, such as those in the capital markets and asset management teams, taking the total tally in the group to 208, according to Michael Reid, the firm’s spokesman.
The expansion shows how fund managers are looking to boost returns with creative types of lending as traditional banks turn cautious and scale back loans to reduce the risk of defaults. Pimco’s alternatives business also includes specialty finance and real estate.
Though yields on new private deals have started to fall slightly, the capital solutions category is “still a buyer’s market, so you’re seeing much wider spreads and higher yields,” Weinstein said.
For a lender in these types of deals, returns could come in the form of cash and paid-in-kind interest, upfront and exit fees, and at times some form of equity.
Pimco is also poised to pounce on portfolios being sold by banks that are retrenching, he said. It’s looking to lend against a range of assets in areas such as aircraft leasing, equipment and inventory financing, auto and consumer loans, and credit card portfolios.
The asset manager is positioned for a rebound in tourism and is focused on the “fun sector” many investors have overlooked, such as airlines, hotels, gaming, vacation, rental property, theme parks and concert venues, according to Mark Kiesel, Pimco’s chief investment officer for global credit.
Airlines are generating double-digit profit growth and many companies are using almost all of their excess cash to pay down debt, while something similar is happening in the gaming industry, Kiesel said in the note.
“These sectors are booming at a time when bondholders are the primary beneficiaries,” he added.
Pimco has also reduced its bank exposure as pricing becomes less attractive.
“Monetary policy is becoming quite restrictive, and ultimately we think it will cause an economic slowdown, if not a mild recession,” Kiesel said. “Usually, you’re better off buying banks coming out of a recession, not going into one.”
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