A Q&A with Christian Stracke, global head of credit research & Adam Gubner, head of US corporate special situations at PIMCO
Record corporate leverage and challenging macroeconomic factors are combining to create a compelling investment environment for managers with flexible capital. Christian Stracke and Adam Gubner explain why.
Why is the credit market compelling right now?
Stracke: There are three key reasons. First, there is a limited supply of flexible capital. Second, there are global macro headwinds. And third, we are seeing a significant increase in corporate leverage. The market is increasingly fragile against a backdrop of rising rates, higher inflation, and slowing growth – this supports an increasing demand for that flexible capital.
Can you explain the need for flexible capital?
Gubner: Demand for private credit is growing from a variety of factors. Assets under management in the private debt space reached a 20-year high of $1.2trn in 2021 from $50bn in 2001. The sheer growth of the market means borrowers often have a greater certainty of execution, while the private market is often more flexible for the customised financing terms required to meet certain unique borrower needs.
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The US economy is teetering on the brink of recession
The US economy is teetering on the brink of recession, World Economics has stated this morning.
Business activity indicators all remain close to the 50 "no growth" line. Business confidence is actually sitting right on the 50 no-growth fence. Both sales and market growth indices fell in July, the former just below and the latter just above 50. The staffing index rose sharply year-on-year, but remained at a lowly reading of 48.1. The overall sales managers index remained marginally under the 50 no growth line. Prices continue to rise, but at a rapidly diminishing rate, perhaps the most encouraging sign this month.
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