US - Pacific Investment Management Co., manager of the world's largest mutual fund, raised more than $1.5bn for a private pool to buy assets from banks looking to strengthen their balance sheets, according to two people with knowledge of the fundraising.
The Pimco Bravo fund, short for Bank Recapitalization and Value Opportunities, will buy debt such as troubled commercial and residential mortgages, and may invest directly in banks through securities including warrants and convertible debt, said the people, who asked not to be named because the fund is private. Pimco is still accepting money and expects to raise $2bn to $3bn in total before a final close later this year, said an investor briefed on the plans.
Pimco, best known for its fixed-income mutual funds such as those run by Bill Gross (pictured), has raised at least $6.5bn from institutional clients to buy troubled mortgages and bonds backed by real-estate loans since the global financial crisis began in late 2007. Financial institutions are selling assets after setting aside money for losses on the debt and international regulators last year agreed to tighter capital standards under the so-called Basel III guidelines.
"You've got community and regional banks out there that have been every quarter adding to their loss reserves," said David Tobin, a principal at Mission Capital Advisors in New York, which advises banks on real-estate debt and helps clients sell loans.
Mark Porterfield, a spokesman for Newport Beach, California-based Pimco, declined to comment.
The Bravo fund will target smaller lenders and community banks and will be run by a team of Pimco fund managers led by Dan Ivascyn, a portfolio manager in the mortgage and asset- backed securities group, and Scott Simon, head of the group, according to the investor. Pimco also hired professionals from real-estate investment firm JER Partners, the investor said.
Similar funds by Pimco include the Pimco Distressed Mortgage Fund II LP, started in early 2009, which has returned about 60% annually after fees, one of the people said. The Pimco Distressed Mortgage Fund LP, which opened in October 2007 before the crisis peaked and lost almost a third of its value the following year, produced annualized returns since inception exceeding 10%, the person said.
Hedge funds investing in distressed securitized debt such as bonds backed by mortgages returned 28.7 percent on average last year, compared with 15.9 percent for funds focused on distressed corporate debt, according to industry researcher HedgeFund.net.
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Respondents say they should only be required in certain situations as the system is not broken.