Text on screen: PIMCO
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Text on screen: What should alternative investors know about the economic outlook?
Images on screen: Daniel J. Ivascyn and Richard Clarida presenting at the alts conference
Text on screen: Daniel J. Ivascyn, Group Chief Investment Officer
Dan Ivascyn: We do think monetary policy operates with a lag. We think a lot of this post-COVID stimulus now is dissipating in terms of its influence on decisions. And then we have things like a government shutdown coming up but we are seeing some signs of deterioration within the household, both households and corporates, and plenty of other macro uncertainties. So we're a bit more cautious when we think about the rate markets at these levels.
Text on screen: What is the Fed going to do next?
Images on screen: Daniel J. Ivascyn and Richard Clarida presenting at the alts conference
Text on screen: Dr. Richard Clarida, Global Economic Advisor & Former FED Vice Chairman
Dr. Richard Clarida: The Fed has, in its baseline projections, really zeroed in on a soft landing scenario with really no recession and disinflation.
But I think that the road could be bumpy on the path to that soft landing. And I think our focus at PIMCO is the Fed's resolve eventually to get inflation down to 2 percent. And that's quite important. It helps to anchor the way that we think about investing.
The Fed likes it when people give big raises, but those raises have to be consistent with the underlying price inflation target of 2 percent. And that's probably the one piece of the puzzle from the Fed's point of view now that's not yet come into place.
If you're Jay Powell and the committee, as you're making that calculation on whether or not another hike is needed, you'll look at the overall tightening in financial conditions, and the Fed could well be done if this sticks.
Text on screen: What does this mean for alternatives investors?
Images on screen: Daniel J. Ivascyn and Richard Clarida presenting at the alts conference
Dan Ivascyn: We’re not out of the woods yet. There's certainly a chance you have a soft landing, but you could have a harder landing at a time where inflation remains elevated and where policymakers can't come to the rescue like they certainly did in COVID, but have also done in prior cycles.
And I think that's going to create opportunities in a lot of areas. Rich also mentioned bank regulation. It's highly uncertain. There's a lot of pressure from shareholders to clean up balance sheets. So we're seeing relatively healthy institutions step away from markets, look to partner, look to sell risk over the course of the last few months.
In Europe, in some sense these are markets where they're just less vibrant, even less flexibility. Even some of the type of open ended funds over in Europe have less ability to wait out this cycle. So even from a technical perspective over in Europe, some pretty exciting opportunities as well.
Text on screen: Where are the opportunities right now?
Images on screen: Daniel J. Ivascyn and Richard Clarida presenting at the alts conference
Dan Ivascyn: If you look today at the significant repricing we've seen in public markets, we tend to prefer opportunities there.
These are going to be great vintages, we believe, across the private opportunity set, and there's a whole range of flavors of opportunity there. You don't have to be wildly aggressive to generate very, very attractive returns.
But in general, good forward value in privates, good current value in publics today.
We like agency mortgages. That's a sector where we don't think you have to rush into that space across our alternative strategies. It's a high quality asset. It's a reasonably liquid asset. We think it's poised to do well when and if interest rate volatility begins to subside, but a pretty attractive area of the marketplace. We think from a relative value perspective, there's some interesting opportunities within the emerging markets. Within the alternatives complex, emerging markets, central banks have been well ahead of the fight on inflation this time. You're seeing a significant yield advantage with the inflation process in some of these markets, actually looks more constructive than in the developed world. So those are some areas that look quite attractive to us as well. Asset-backed CMBS markets on the public side look good for different reasons.
Then within the higher quality structured product markets, motivated sellers of risk, we are even able to acquire big pools of assets and do our own securitizations.
So those are a few of the sectors that we like.
And then for the patient deployer of capital that's managing capacity carefully and not getting stuck in crowded sectors, this is going to be a good vintage for private opportunities.
We really believe that.
Text on screen: For more insights and information, visit pimco.com
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CMR2023-1011-3162533
