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 firm 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 CEO 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," Mr. Roman said during an interview. "There will be a lot of capital to deploy."
He and Mr. Ivascyn declined to discuss the firm's specific private funds, citing regulatory restrictions on marketing.
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.
PIMCO began exploring the alternative debt market in 2007 under initiatives Mr. Ivascyn helped start as a mortgage portfolio manager. Over the past decade, PIMCO has raised more than $25 billion for a dozen private funds.
BRAVO III, which invests in real estate and other debt opportunities, is among the biggest of PIMCO's private funds, at $4.6 billion. It charges a hedge-fund-like 1.5% management fee plus 20% of returns while targeting a 14% to 16% return rate and requiring a seven-year commitment. By contrast, the PIMCO Income Fund charges institutional clients 0.5% of assets while averaging 5.5% annualized returns over the past five years and offering daily liquidity.
In anticipation of launching more private funds, PIMCO is beefing up its ranks of investing professionals, with an emphasis on specialists in credit and high-tech quantitative investing, Mr. Roman said. Recent hires include John Studzinski, a former managing director at Blackstone, to manage relations with large clients such as sovereign wealth funds; Geoffrey Jones and Gabriel Goldstein, formerly with Tennenbaum Capital Partners, to focus on private and opportunistic credit; and Erin Browne from UBS Group AG in asset allocation.
