(Bloomberg) -- Investment opportunities are growing in Europe as a result of banks cleaning up their balance sheets, while uncertainty surrounds trade tensions with China, according to Pacific Investment Management Co. Chief Executive Officer Emmanuel “Manny” Roman.
“There’s an opportunity in Europe stemming from banks,” Roman, whose firm oversaw $1.77 trillion as of March 31, said in an interview Monday at the Milken Institute Global Conference in Beverly Hills, California. “Banks basically have, in a pretty good way, cleaned up their balance sheets and sold assets that for capital reasons they didn’t need to own or couldn’t own any more. That has given opportunities in real estate and non-performing loans and sometimes in consumer credit.”
Pimco, like most bond-management firms, has struggled to achieve positive returns this year as rising U.S. interest rates drive down fixed-income prices. Its largest fund, the $112 billion Pimco Income Fund, is down 0.7 percent, compared with a 2.2 percent decline for the benchmark Bloomberg Barclays U.S. Aggregate Bond Index.
Inflation could flare up during the first half of this year, but rates are unlikely to soar, Roman said. The 10-year Treasury yield traded Monday at 2.95 percent after surging above 3 percent last week from a low of about 2 percent last September.
“We’re not going to see a real bear market in bonds over the next few years,” he said.
U.S. trade tensions with China, Canada and Mexico are casting a shadow over the economy, he said. Renegotiating the North American Free Trade Agreement, which is more than 20 years old, may prove less problematic than a clash with China, which is having trouble adapting to the unusual negotiating style of President Donald Trump, he said. Treasury Secretary Steven Mnuchin is leading a delegation to Beijing this week to try to hammer out an agreement.
“It’s a real issue,” Roman said. “But the trade war with China will hopefully move in the right direction after the trip that Secretary Mnuchin is taking this week.”
The investment opportunities in Europe are often longer-term assets that the firm purchases for private equity-like funds, said Roman, 54, who joined Pimco in 2016 after leading U.K.-based investment firm Man Group Plc. Italy and Spain have been the leading sources of assets, followed by the U.K. and Ireland with smaller deals from Eastern Europe, he said.
For Newport Beach, California-based Pimco, a major focus is acquiring technology and talent to gain an investing edge, according to Roman. The industry is likely to see more consolidation among mid-size firms trying to gain enough scale to afford the capital expenses needed to compete, according to Roman.
Pimco has been on a hiring spree, announcing in April that it’s planning to open a new U.S. office in Austin, Texas, where about half of the 200 employees will be technology specialists to support big data, artificial intelligence and software development.
Roman said another coming technology change will affect the way trades take place and records are kept with the growing use of the digital ledger blockchain.
“The whole change introduced by blockchain in terms of custody and administration, it will revolutionize what they do,” he said. “You can think of a world where one day you have an absolute straight processing, where because of blockchain you will be able to make sure that you go from executing a trade to your NAV being computed with the right type of information in one go. And that will happen in the not-too-distant future.”
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