The Treasury Department may seek to expand participation in its toxic-asset purchase plan to include smaller hedge funds and investment firms with less ability to raise private capital than currently required, according to a statement today from the agency.
The new program to spur investors to buy mortgage-backed bonds from banks requires that funds have $10 billion under management, a capacity to raise at least $500 million of private capital and/or experience in investing in these securities.
Treasury said it may loosen eligibility requirements sometime after May 15, when it plans to give preliminary approval to at least five fund managers.
The Obama administration today also gave investment funds an additional two weeks until April 24 to apply to become fund managers in its Public-Private Investment Program.
The agency, led by Secretary Timothy Geithner, said it plans to encourage veteran-, minority- and women-owned businesses to partner with private money managers by acting as an equity partner, fundraising partner or the like.
The administration is trying to appear to make the process more transparent, Sylvain Raynes, a Baruch College professor, said in an e-mail. That only works if the minority-owned managers are able to buy the assets directly from the institutions that now hold.
Under the programs current structure, however, smaller funds will be arbitraged by larger firms such as PIMCO and BlackRock, said Mr. Raynes, founding principal of R&R Consulting in New York.
Treasury said it also may expand eligible assets for purchase from just non-agency commercial and residential mortgage-backed securities issued before 2009 and originally rated AAA. It gave no further details.
The governments goal is to maximize the inflow of private capital into the market in an expeditious manner while at the same time balancing the participation of both large and small fund managers while protecting the interests of U.S. taxpayers, Treasury said in its statement.
The government will match capital raised by private investors and seek to reduce their risk by providing guarantees.
Analysts have expressed concern that prices paid for the assets may turn out to be either too high, penalizing U.S. taxpayers, or too low, harming the banks.
Neil Roland is a reporter for the Crain Financial Group.