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U.S. bond giant Pacific Investment Management Company (PIMCO) said on Monday it expects the next few years to provide the best opportunities for private credit investors since the global financial crisis.
As banks become more cautious on lending due to lower liquidity and regulatory scrutiny, this has created a "void in lending markets" allowing private capital to step in, it said.
Private investors could demand wider spreads and stricter covenants, and take advantage of growing opportunities to either purchase senior corporate loans at a discount or to refinance companies directly with more flexible loans and capital structures, it said.
"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," they said.
PIMCO, which manages $1.8 trillion in assets, began this year to expand its reach into areas previously dominated by regional banks, increasing its offerings of private financing to struggling businesses to which banks have pulled back lending.
In particular, PIMCO expects the lower liquidity environment to create opportunities for private credit investors in specialty finance - collateral-based loans to consumers and small businesses - as well as in senior corporate loans and commercial real estate.
Within specialty finance, the asset manager singled out residential mortgage credit, solar and home improvement lending, equipment finance and aircraft leasing.
PIMCO said it expects opportunities for private credit to provide such financing not just directly to borrowers, but also to banks and non-bank lenders.
And with demand for capital outstripping supply, "investors won’t need to take large risks, in our view, to generate compelling returns," it said.
(Reporting by Matt Tracy and Davide Barbuscia Editing by Nick Zieminski)