Aug. 27 (Bloomberg) -- Pacific Investment Management Co., the biggest manager of bond funds, is seeking as much as $5 billion to buy mortgage-backed debt that plunged in value after the subprime market collapsed, according to two investors with knowledge of the matter.
The Distressed Senior Credit Opportunities Fund will invest in ``senior'' and ``super-senior'' securities backed by commercial and residential mortgages, said the people, who asked not to be identified because the fund is private. Senior debt is first to be paid off in a default.
Pimco, based in Newport Beach, California, and money managers such as BlackRock Inc. and TCW Group Inc. have opened funds to buy securities they consider cheap based on the underlying value of the assets or the borrower's ability to repay the debt. Investors have pulled back from all but the safest government-backed debt as the foreclosure rate on U.S. subprime- mortgage loans doubled to a record 10.7 percent in March from a year earlier.
``There's a handful of firms out there, Pimco being one of them, that are well-positioned to deal with this credit crisis and the fire sales going on in mortgage-backed securities,'' Geoff Bobroff, a mutual-fund consultant in East Greenwich, Rhode Island, said in an interview.
Pimco, a unit of Munich-based insurer Allianz SE, oversees $830 billion, including the $129.5 billion Pimco Total Return Fund, the largest bond mutual fund. Last year, it raised almost $3 billion to invest in distressed mortgage assets, the investors said.
Mohamed El-Erian, Pimco's co-chief executive officer, declined to comment. El-Erian shares the position of co-chief investment officer with Bill Gross, while Bill Thompson is the co-CEO.
Boosting Returns
The firm has sought to boost mutual-fund returns in the past year by buying more mortgage-related assets. The investments generally target high-quality mortgage debt, such as those guaranteed by government-chartered agencies Fannie Mae and Freddie Mac.
Gross's Total Return Fund advanced 9.4 percent in the past year to beat 99 percent of competing bond funds, according to data compiled by Morningstar Inc. in Chicago. The fund had 61 percent of its assets in mortgage securities as of June 30, up from 53 percent a year earlier.
Dubbed Disco
``One of the most extraordinary things we've seen with Pimco over the past year is that they've invested in high-quality mortgage-backed securities across the board,'' said Lawrence Jones, a mutual-fund analyst at Morningstar. ``They've been calling for a housing slowdown before the term `subprime' became popular in cocktail-party conversations.''
The new Pimco fund, dubbed Disco, will focus on commercial loans as well as residential debt that doesn't carry explicit government guarantees or the implied backing of securities issued by companies such as Fannie Mae or Freddie Mac, the investors said. It also will seek investments in securities backed by home- equity, credit-card and auto loans, they said, and can invest in debt secured by collateral outside the U.S.
The Disco fund has a 15-month investment period and a 5-year life. It will be jointly managed by Pimco's credit teams in the U.S. and Europe, the investors said.
BlackRock, the second-largest U.S. bond manager, with $527 billion in fixed-income assets, has several funds aimed at profiting from the credit drought. It teamed up with Boston-based hedge-fund firm Highfields Capital Management LP to start a company and raise $2 billion to buy delinquent home mortgages. Since the subprime crisis began last year, New York-based BlackRock has raised more than $5 billion to buy mortgages, distressed debt and loans.
Delinquency Rates
Prices of non-agency mortgage securities have tumbled to record lows. AAA fixed-rate prime-jumbo securities typically fetch a record 12 cents per dollar of principal less than similar securities backed by government agencies, according to an Aug. 20 report by Credit Suisse Group analysts. Jumbo loans are those over $417,000.
The commercial-mortgage bond market hasn't faced the same rate of late payments as debt tied to subprime home loans. The percentage of all commercial mortgage loans that were delinquent increased 2 basis points in July to 0.43 percent, according to Fitch Ratings. A basis point is 0.01 percentage point.
Delinquencies for subprime loans in 2006 bonds climbed to 41.7 percent, based on July reports from trustees, from 34.2 percent in February, Standard & Poor's said Aug. 21.
Yields on commercial real-estate securities relative to benchmarks have surged on concern that defaults will increase. For AAA-rated commercial mortgage-backed bonds, yields have widened to 284.43 basis points more than 10-year swap rates as of Aug. 22, up from 55 basis points a year earlier, according to data from Bank of America Corp. The swap rate is what borrowers pay to exchange fixed-rate interest payments for floating ones.
No comments:
Post a Comment