Specialty Finance: The $20 Trillion Next Frontier of Private Credit

Bank retrenchment and the emergence of private lending has been a dominant theme for much of the post-GFC environment. During this period, private credit markets have grown dramatically, providing the potential for attractive diversification, enhanced income, and reduced volatility.Footnote[i] A confluence of tightening lending conditions, ongoing regulatory and accounting changes, and an unwinding of bank balance sheets has created a unique entry point for specialty finance investors and catapulted this asset class into focus. We believe the private credit market is set for its next phase of growth with specialty finance, as investors need to diversify their private credit allocations beyond middle market direct lending. Here, we sit down with Harin de Silva and Kris Kraus, who co-lead PIMCO’s specialty finance, and Jason Steiner, who leads PIMCO’s residential mortgage credit team, to unpack what the broader credit tightening means for investors, and how it is creating potentially compelling investment opportunities across these markets.

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