PIMCO Launching New Bond Fund
Kurt Brouwer September 13th, 2007
The folks at PIMCO see an opportunity in the beaten-down market for mortgage-backed bonds as Craig Karmin at the Wall Street Journal reports:
‘…Pacific Investment Management Co., a unit of Germany’s Allianz SE, is planning to launch a $2 billion distressed-debt fund, joining a list of money-management firms hoping to buy beaten-down mortgage securities on the cheap.
Pimco Distressed Mortgage Fund will invest in a variety of assets, including mortgage-backed securities, asset-backed securities and collateralized debt obligations, according to a Pimco document. A spokesman at Pimco, a Newport Beach, Calif., money-management firm with $693 billion in assets, declined to comment…’
PIMCO has lots of experience investing in high quality mortgage-backed bonds and now they see an opportunity in so-called distressed securities. In particular, the Fund will invest in troubled bonds backed by mortgage debt. You may be wondering why they would want to venture into such an area, but it is clear that some of these bonds have fallen so far that they are attractive buys, provided the buyer is a savvy manager such as PIMCO. We are taking a look at the Fund. It’s hard to say at this point whether we will invest or not, but given our confidence in the PIMCO brain trust, it is worth doing some research and taking a look at the Fund.
- Hedge Funds , Investing , Mutual Funds
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Kurt, how soon do you think it would be before GoldmanSachs, BearStearns, etc, started offering those CDOs to the individual investor on a retail basis? Has the price gotten low enough to do so? And can Goldman and Bear leverage the power of their brand names to get them sold?
It seems to me that PIMCO has probably done enough research into the delinquency rates of subprime mortgages to conclude that the risk is tolerable enough for investment. I just wish the big firms would be willing to let everyone else take a share of that risk, as I’m convinced that subprime mortgages aren’t nearly as toxic as claimed to be.
Brad, good points. At the right price, distressed bonds can be attractive. If you want to invest directly in distressed mortgage-backed bonds, it would be more difficult, but not impossible.
An easier and more diversified way to participate would be to invest in the PIMCO fund featured in this post. Another fund making these kinds of investments is Wintergreen Fund. I recently posted on it.