Newport Beach-Calif-based Pacific Investment Management Co. (Pimco), a top bond-investment manager, is canvassing the distressed debt market for opportunities, according to a report from Bloomberg.

Pimco seeks to invest up to $5 billion through a fund dubbed The Distressed Senior Credit Opportunities Fund, or Disco, in distressed MBS, and more specifically senior and super-senior securities backed by residential and commercial mortgages.

Disco will have a 15-month seed period and will invest over the course of five-years, according to the report. The fund will be managed both by the firm’s credit teams in the U.S. and Europe.


A Pimco spokesperson declined to comment.


Typically, Pimco targets high-quality mortgage debt including those backed by Fannie Mae and Freddie Mac. The new fund will be different in that it will target commercial and residential loans that don’t necessarily carry “explicit government
guarantees” or the implied backing of securities issued by the Government Sponsored Entities, according to the story.

“They’ve been calling for a housing slowdown before the term ‘subprime’ became popular in cocktail-party conversations,” said Lawrence Jones, Morningstar mutual fund analyst, in the Bloomberg report.

BlackRock recently teamed up with hedge fund Highfields Capital Management to invest in and restructure distressed mortgage loans. Similarly, The Carlyle Group closed a $1.35 billion fund last spring, the second such vehicle by the firm designed to scour for distressed debt investments.


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