Pacific Investment Management Co. is prepping for the next downturn, betting high-fee private funds can turbocharge its growth.
The firm, widely known for its publicly traded bond funds, is floating a private variation of Chief Investment Officer Dan Ivascyn’s $113 billion Pimco Income Fund, according to people with knowledge of the proposal. The vehicle would restrict redemptions, unlike Pimco’s largest mutual fund, while carrying lower risk than most of its other private funds, said the people, who asked not to be identified because the information isn’t public.
The potential new offering would add to a modest but growing part of Pimco’s products for larger and more sophisticated investors. The Newport Beach, California-based asset manager is taking steps in its push to issue more private funds such as hiring managers experienced in distressed debt, emerging markets and other opportunistic assets. Manny Roman, who became chief executive officer two years ago, expects the move will help the firm cash in when the next economic downturn comes.
“If we have a deep recession, which won’t be good for the world, there’ll be a lot of opportunity,” Roman, 55, said during an interview. “There will be a lot of capital to deploy.”
He and Ivascyn declined to discuss the firm’s specific private funds, citing regulatory restrictions on marketing.
Economic Outlook
The chances of a recession are “quite likely” in the next three to five years, Pimco said last month in its economic outlook -- and it could happen sooner.
“Our models, like many others, see an increased risk in 2020,” Ivascyn, 49, said.
As part of its expansion in private funds, Pimco is raising a $1.5 billion commercial real estate debt fund, according to a presentation for the Pennsylvania Public School Employees’ Retirement System, which invested $200 million in July. It’s also amassing the Pimco CLO Opportunities Strategy Fund, which buys debt and equity slices of collateralized loan obligations.
Private funds are sold to so-called accredited investors who agree to the steeper costs and longer lockups in exchange for potentially lofty returns. The strategy distinguishes Pimco, which oversees about $1.72 trillion, from rivals such as Fidelity Investments that have been competing for assets by slashing fees. But Pimco faces a flush field of private credit specialists like Ares Management LP, Blackstone Group LP and Oaktree Capital Group LLC.
The private fund strategy relies more on skills than scale and carries growing risks as more asset managers rush to put money to work, according to Devin Ryan, an analyst with JMP Securities in New York.