PIMCO Flexible Credit Income Fund
$2.9B
Unlimited
Opportunistic
Newport Beach, CA
Non-Accredited
$3.7B
Massachusetts Business Trust
Private Credit
February 2017
Pacific Investment Management Company LLC (“PIMCO”)
PricewaterhouseCoopers LLP (“PwC”)
Ropes & Gray LLP
Strategy
The Flexible Credit Income Fund (“the fund”) is PIMCO’s flagship offering in the multi-sector credit space. The fund invests in a wide variety of global credit assets, including corporate bonds, residential mortgages, commercial real estate, and consumer credit. The fund can invest in both public and private credit markets, and seeks relative value across the capital structure and liquidity spectrum of global credit markets.The primary investment universe of the Fund includes below investment grade debt (such as High Yield and Leveraged Loans, including securities of stressed and distressed issuers).
The fund's flexible, multi-sector approach allows PIMCO to evaluate a broad range of potential investment opportunities, while aiming to build a diversified portfolio that can withstand shocks to individual sectors or industries. The fund's interval fund structure allows it to invest in less liquid, and potentially higher yielding, assets, and to make opportunistic purchases during periods of volatility. The Fund has generated consistent monthly income for investors, with a current annualized yield of 9%.
As one of the largest credit investors globally, PIMCO has the scale and presence to source deals efficiently, influence terms, and analyze relative value across global credit markets. The manager employs an active approach to allocation among multiple credit sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. It is expected that the fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year range), although it may be shorter or longer at any time or from time to time depending on market conditions and other factors.
As an interval fund, the fund does not offer daily redemptions. This gives the fund more flexibility to invest in less liquid, potentially higher-yielding assets. In addition, the fund can make opportunistic purchases during periods of volatility without having to worry about meeting daily redemption requests. As a result, the fund has historically been able to offer current income and attractive risk-adjusted returns through a variety of market environments. The below chart shows the funds income distribution history through various market environments.
Style
| Value | Core | Growth | |
| Large | |||
| Mid | |||
| Small |
Fit Check
The fund is available to Non-Accredited investors. The minimum investment for A-1 shares is $2,500.
This fund may be desirable for investors seeking high current income with elevated risk given a focus on below investment grade credit as well as non-US debt securities. The fund provides distributions on a monthly basis. With a shorter portfolio duration, this Fund can offer a moderate level of interest rate risk and can provide a balance between stability and yield.
Investors need to be aware that this fund is not considered liquid and should be viewed as a long-term investment. There is no guarantee that an investor will be able to tender all of their requested Fund shares in a periodic repurchase offer.
Portfolio Snapshot
As of August 31, 2023
Asset
Geography
Score Breakdown
BULLS SAY
Attractive yield: This fund provides attractive monthly distributions to its investors. Compared to other similar private credit funds, the PIMCO Flexible Credit Income Fund has a relatively high annualized distribution rate.
Multiple sources of return: The fund invests in a wide variety of global credit assets, including corporate bonds, residential mortgages, commercial real estate, and consumer credit. The fund can invest in both public and private credit markets, and seeks relative value across the capital structure and liquidity spectrum of global credit markets.
Deep resources: PIMCO is a well-established investment firm known for its expertise in the credit markets. They employ hundreds of investment professionals and analysts, allowing them to source more deals and research more opportunities versus their competitors.
BEARS SAY
Derivatives exposure: Derivatives, reverse repurchase agreements and other such instruments may represent a form of economic leverage and create special risks. The use of these forms of leverage increases the volatility of the portfolio and could result in larger losses than if derivatives were not used.
Volatility: The Fund has experienced significant drawdowns during its life. These drawdowns are large enough that they resemble equity drawdowns. The Fund was down -20% in March of 2020.
Complex portfolio: The fund invests in many credit asset classes internationally, as well as derivatives, which makes it challenging to understand your risk exposure and where a fund like this fits within an overall investment portfolio.
Fees
|
Fees & Expenses |
Class A-1 |
Class A-2 |
Class A-3 |
Class A-4 |
Class I |
|
Minimum initial investment |
$2,500 |
$2,500 |
$2,500 |
$2,500 |
$1,000,000 |
|
Availability |
Brokerage accounts and directly through PIMCO |
Brokerage accounts and directly through PIMCO |
Brokerage accounts and directly through PIMCO |
Brokerage accounts and directly through PIMCO |
Brokerage accounts and directly through PIMCO |
|
None |
Up to 3.0% |
None |
Up to 3.0% |
None |
|
|
None |
1.00% |
None |
1.00% |
None |
|
|
None |
None |
None |
None |
None |
|
|
2.09% |
2.09% |
2.09% |
2.09% |
2.09% |
|
|
0.50% |
0.50% |
0.75% |
0.75% |
None |
|
|
0.44% |
0.44% |
0.44% |
0.44% |
0.44% |
|
|
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
|
|
Total Annual Fund Expenses |
3.04% |
3.04% |
3.29% |
3.29% |
2.54% |
To help you compare the cost of investing in the Fund with the cost of investing in other funds, we have provided an example of the projected dollar amount of total expenses that would be incurred over various periods with respect to a hypothetical investment in the minimum amount required for each class of the Fund’s Common Shares.
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In calculating the projections above, we made a few assumptions:
(1) A hypothetical 5.0% annual return, as required by regulation of the SEC and applicable to all registered investment companies. The assumed return is not a prediction of, and does not represent, the projected or actual performance of the Fund. Performance will vary and may result in a return greater or less than 5.0%
(2) Annual operating expenses and offering expenses remain at the levels set forth in the Price Tag table above.They should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown.
(3) Net return after payment of fees and expenses is distributed to shareholders and reinvested at NAV.
Managers
-
Industry Experience 30+ years.
Career highlights Mr. Ivascyn joined PIMCO in 1998, previously having been associated with Bear Stearns in the asset backed securities group, as well as T. Rowe Price and Fidelity Investments. He has investment experience since 1992.
Education Bachelor’s in Economics from Occidental College and an MBA in Analytic Finance from the University of Chicago Graduate School of Business.
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Industry Experience 25+ years.
Career highlights Mr. Kiesel is a member of the PIMCO Investment Committee, a generalist portfolio manager and the global head of corporate bond portfolio management. He has served as a portfolio manager, head of equity derivatives and as a senior Credit Analyst since joining PIMCO in 1996.
Education Bachelors from the University of Michigan and an MBA from the University of Chicago's Graduate School of Business.
-
Industry Experience 23+ years.
Career highlights Mr. Murata is a portfolio manager on the mortgage credit team. Prior to joining PIMCO in 2001, he researched and implemented exotic equity and interest-rate derivatives at Nikko Financial Technologies.
Education Ph.D. in Engineering-Economic Systems and Operations Research from Stanford University and a J.D. from Stanford Law School.
Full Review
AVERAGE
The Fund has high fees and there is a lack of “skin in the game” by the portfolio managers. There is no performance fee charged by the Fund to incentivize portfolio managers to deliver higher returns.
The stock ownership by the portfolio managers varies. There are a total of six portfolio managers where only two out of six are personally invested in the fund. But the one that has a substantial dollar amount in the fund is the lead portfolio manager, Daniel Ivascyn, who has over $1M personally invested. While some of the PMs are not invested, a PIMCO representative mentioned that “PMs are partially compensated based on the performance of the Fund.”
BELOW AVERAGE
| Total Returns (as of 6/30/2023) | Distribution Rate | ||||
| 1-YEAR | 3-YEAR | 5-YEAR | INCEPTION TO DATE | ANNUALIZED DISTRIBUTION PER NAV | |
| Class A-1 (PFAIX) | 0.18% | 4.43% | 1.99% | 3.16% | 9.0% |
| Calendar Year Returns (as of 6/30/2023) | |||||
| 2018 | 2019 | 2020 | 2021 | 2022 | |
| Class A-1 (PFAIX) | 1.86% | 9.59% | 3.45% | 11.18% | -13.98% |
The PIMCO Flexible Credit Income Fund performance has been volatile since inception, with a total return of 3.16% for the A-1 share class as of June 30, 2023. This lackluster performance is primarily driven by a weak 2022 calendar year, where the fund declined -14%. Prior to 2022, the fund delivered positive calendar year total returns with elevated volatility for credit funds. Importantly, the fund boasts an attractive 9% annualized income yield with monthly distributions.
The Flexible Credit Income Fund does not have a stated performance benchmark given the unique and unconstrained approach utilized by PIMCO. Given the fund’s exposure to below investment grade credit, one may expect this fund to perform similarly to the US corporate high yield market. As of July 31, 2023, the fund and the Bloomberg US High Yield Bond Index had a positive correlation of 0.80.
AVERAGE
The fund seeks to achieve its investment objective by investing in a wide array of global credit sectors, specifically higher risk segments that are more volatile than investment grade credit investments. This includes distressed and defaulted debt securities issued by US or foreign companies, as well as emerging market debt. As such, the fund is subject to credit risk and default risk. The fund is also exposed to interest rate risk, however, the portfolio’s large exposure to floating rate debt helps somewhat offset this. Interest rate risk is the risk that fixed income securities and other instruments in the Fund’s portfolio will fluctuate in value because of a change in interest rates.
LOW
As one of the largest credit investors globally, PIMCO has the scale and presence to source deals efficiently, influence terms, and analyze relative value across global credit markets.There is a considerable amount of debt taken on by the fund. As of July 31, 2023, the total effective leverage was 40.53% (39.84% Reverse Repurchase Agreements and 0.68% Credit Default Swaps). Reverse repos are typically shorter-term transactions therefore have lower risk compared to longer term lending arrangements.
AVERAGE
The fund operates as an interval fund, offering quarterly repurchases of up to 5% of outstanding shares, subject to approval of the Board. Overall, the Fund is illiquid, meaning that investors cannot easily sell their shares. The fund's flexible, multi-sector approach allows PIMCO to evaluate a broad range of potential investment opportunities, while aiming to build a diversified portfolio that can withstand shocks to individual sectors or industries. The fund's interval fund structure allows it to invest in less liquid, and potentially higher yielding, assets, and to make opportunistic purchases during periods of volatility.
ABOVE AVERAGE
The Fund provides a significant amount of information available on its website. Materials include Fact Sheets, Presentations, SEC filings, SAI, and content. It was easy to get in contact with a representative at PIMCO that specifically focuses on their interval funds.
PIMCO offers a spreadsheet of all portfolio holdings on their website. This spreadsheet contains the name of the security, the interest rate paid, its maturity date, and the percent of net assets that the security is, plus more. Compared to most funds, this is very transparent.
Peer Group
 |
 |
 |
|
|---|---|---|---|
| Vehicle name | PIMCO Flexible Credit Income Fund (A-1) |
Apollo Debt Solutions BDC |
Lord Abbett Credit Opportunities Fund (Class A) |
| Minimum investment | $2,500 | $2,500 | $2,500 |
| Holding period | Permanent capital | Permanent capital | Permanent capital |
| Annual management fee | 2.10% | 1.25% | 1.25% |
| Distribution and Servicing Fee | None | 0.85% | 0.75% |
| Sales Load | 0% | 3.5% | 2.5% |
| Inception Date | February 22, 2017 | February 1, 2022 | September 13, 2019 |
| 1-Year Net Returns | 0.18% | +6.35% (with sales charge) | +2.94% (with sales charge) |
| Net Returns Since Inception (Annualized) | +3.16% | +8.30% (With Upfront Placement Fee) | +5.30% (with sales charge) |
| Annualized Distribution Rate | 9.00% | 8.86% | 7.71% |
| NOYACK® Score | N/A |
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