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PIMCO CEO sees investment opportunities in distressed credit

Published 06/23/2020, 03:57 PM
Updated 06/23/2020, 04:00 PM
© Reuters.

By Kate Duguid

NEW YORK (Reuters) - The damage done to the U.S. economy by the coronavirus pandemic will create opportunities for investors in distressed credit, PIMCO Chief Executive Emmanuel Roman said at the Bloomberg Invest Global conference on Tuesday.

Roman is not expecting U.S. gross domestic product to return to 2019 levels until the end of 2021. The next 18 months are therefore a time when investors can secure positions in businesses and credit at low prices, he said.

"Distress is a long cycle, and the need to deploy capital to restructuring situations is actually an opportunity to deliver outsized returns," said Roman. "It is something that we are focusing on."

S&P Global Ratings Research estimates that the global default rate for speculative-grade companies will rise to 12.5% by March 2021, from 3.5% as of March 2020.

Earlier this year, Bloomberg reported that PIMCO was seeking to raise up to $3 billion for a distressed debt fund, its largest ever. The Newport Beach, California-based Pacific Investment Management Co (PIMCO) has $1.78 trillion in assets under management.

The path to recovery for some U.S. companies has been and will continue to be aided by the Federal Reserve's stimulus operations, said Roman, noting that the bank's pledged support is ultimately more important than what it actually purchases. Issuance of new investment-grade corporate bonds has broken records this year and in May hit $1 trillion, a threshold not breached in 2019 until November.

Roman said the firm had no plans to acquire rival fund managers, and said that mergers would be scarce while meetings were still largely virtual.

© Reuters. FILE PHOTO: Emmanuel Roman CEO, PIMCO, speaks during the Milken Institute's 22nd annual Global Conference in Beverly Hills, California

"I think when people talk on Zoom, it is not easy to do mergers. Until we get back to face-to-face meetings, I don't think you'll see very many mergers. I think at some point you need to break bread and look each other in the eyes and say 'this is something I want to do.'"

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