Pimco steps up distressed bet with another $3B fund

Risk-retention requirements have had a “chilling effect” on the market for mortgage bonds that lack a government guarantee, Pimco said.
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Pimco is seeking to raise another $3 billion for a distressed credit fund as the rush to capitalize on dislocations in the fixed-income market grows.

Pimco’s latest money pool — Distressed Credit Opportunities Fund III — will invest in public market securities, including corporate credit, according to documents from a Fresno County Employees’ Retirement Association meeting this month. The fund, dubbed Disco III, will target leveraged loans, high-yield bonds and collateralized loan obligations.

The fund is at least the second that Pimco has been shopping this year. It’s also targeting at least $3 billion for a corporate opportunities fund that will focus on stressed and distressed debt as well as investing in companies that can’t access traditional markets.

The bond fund giant is one of more than a dozen investment firms raising in excess of $40 billion to capitalize on cheap assets that have been hit by the plunge in oil prices and economic fallout from the coronavirus crisis. Other money managers seeking cash include Howard Marks’s Oaktree Capital Group, which is targeting $15 billion for the biggest-ever distressed-debt fund.

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“Every manager that covers credit sectors believes this is an excellent opportunity to invest, even though much of the damage to those securities has already been repaired,” Doug Kidd, investment officer at the $4.6 billion Fresno County pension system, said by email. The pension, which hasn’t committed to Pimco’s Disco III, was given a presentation on the fund.

“My email is swamped with offers to join webinars or to set up calls to learn about those opportunities,” Kidd said. “With so much money chasing those deals, it will be interesting to see what the returns ultimately look like.”

A representative for Newport Beach, California-based Pimco, which managed $1.78 trillion of assets as of the end of March, declined to comment.

Pimco’s new funds are part of the company’s roughly $25 billion platform of alternative credit and private strategies, which grew out of the global financial crisis in 2008. The firm has been bolstering its expertise in these often niche markets, including hiring Jamie Weinstein as head of corporate special situations in September and Blackstone’s Greg Hall as head of private strategies in 2017. The platform is set to grow to $100 billion in assets when Pimco completes its takeover of the management of parent Allianz’s real estate portfolio.

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“Ideally, you would like clients to try not to make really short-term decisions, however this is an unprecedented situation,” an expert says.

The Disco strategy focuses on less liquid, senior structured credit and will be overseen by Pimco CEO Dan Ivascyn as well as Weinstein and Josh Anderson, a managing director. The prior iteration, which launched in 2011, had net assets of $1.9 billion as of March 2019 and a net annualized return of 12.9% as of June 30, separate documents show. — Additional reporting by Eliza Ronalds-Hannon

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