08/07/2009

PPIP Managers Hit With One-Month Setback

The U.S. Treasury Department has quietly notified the nine asset-management groups chosen to set up funds under its Public-Private Investment Program that the effort's timetable has been pushed back by at least a month.

When the Treasury announced the selection of asset managers on July 8, it said the plan was to have the program up and running in early August. But government officials are still nailing down key details of the initiative, and some of the managers are behind schedule in raising the required minimum of $500 million each from private-sector investors - money the government will match dollar for dollar.

The managers were told this week not to expect to begin investing before Labor Day.

Under the program, originally announced in March, the fund managers will pool public and private capital to buy distressed mortgage assets that are currently cluttering bank balance sheets. The funds now set to launch in September would invest in both residential and commercial mortgage bonds. A separate loan-buying component run by the FDIC, meanwhile, remains without a timeline.

Some of the fund managers are blaming the delay of the distressed-securities effort on hold-ups at the Treasury, which is still working out critical details of the program and has yet to distribute legal documents. The participating firms, for example, are still waiting for guidance on what types of collateral they should target in their mortgage-bond purchases - including whether the Treasury would prefer them to focus on residential or commercial issues.

The lack of clarity, in turn, could be impeding fund-raising efforts. Some managers clearly are taking longer to reach the $500 million threshold than the Treasury anticipated. One market player said the initial one-month timetable for collecting that much equity was "crazy."

An executive at one of the fund managers speculated that some investors will remain on the sidelines until PPIP guidelines come into sharper focus. But another executive said his firm already has commitments for $1.1 billion. He said he expects that the Treasury won't wait for all of the management groups to raise the minimum amount of equity before pulling the trigger on the program.

The nine PPIP managers are:

*AllianceBernstein, which is working with advisors Greenfield Partners and Rialto Capital.

*A partnership between Angelo, Gordon & Co. and GE Capital Real Estate.

*BlackRock.

*Invesco.

*Marathon Asset Management.

*Oaktree Capital.

*A partnership between RLJ Cos. and Western Asset Management.

*TCW.

*Wellington Management.

Atlanta-based Invesco is going with an unusual structure for its PPIP vehicle, creating a so-called master fund to give investors exposure both to a distressed-securities pool and another entity that will buy whole loans through FDIC auctions outside the PPIP. It's unclear whether Invesco will launch a separate fund to buy "legacy" loans via the PPIP once that effort gets under way.

Meanwhile, some PPIP managers were grumbling this week that TCW won its assignment without teaming up with a small firm or one owned by a woman, minority or military veteran. While the program doesn't require such a partnership, most assumed it was an unwritten rule, and all of the other eight fund managers have relationships with small firms owned by women, minorities or vets.

Los Angeles-based TCW apparently felt its experience working with distressed assets was sufficient. The firm already manages five distressed-mortgage-product funds and has a staff of 65 mortgage- and asset-backed securities professionals. Still, in case the Treasury had any 11th-hour concerns, TCW was ready with a Plan B: Company officials had talked to a few minority-owned firms about possible partnerships.

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