BlackRock Inc., Franklin Templeton Investments, Invesco Ltd., Pacific Investment Management Co. LLC and Western Asset Management Co. are among the leading candidates to run funds for the Legacy Securities portion of the governments Public-Private Investment Program, according to observers.
But some industry watchers said that though many firms may have expressed interest in the program initially, some could be having second thoughts now.
Based on my own experience to date, asset managers have an interest in the program, but Im not sure how many have said they will go forward with it, said Barry Barbash, a partner in the Washington office of New York law firm Willkie Farr & Gallagher LLP. He is a former director of the Securities and Exchange Commissions Division of Investment Management.
The degree of red tape and intrusive regulation is a stumbling block, Mr. Barbash said.
Judging by the amount of interest expressed by asset managers in PPIP, it appears at least initially not to be much of a worry.
The Department of the Treasury on April 29 announced the receipt of more than 100 applications from potential fund managers interested in participating in the Legacy Securities portion of PPIP.
Under the Legacy Securities program, institutional investors that have $10 billion of comparable assets will purchase pools of mortgage-backed and mortgage-related securities from banks and other financial institutions.
The program is potentially appealing to asset managers because they would be able to put together products most likely closed-end funds, hedge funds and private-equity funds, and to a smaller extent, mutual funds that have the potential to deliver huge returns.
Once a fund manager is pre-qualified, it can begin raising the expected minimum of $500 million in private capital that would serve as the investment that, pending further approval, would be matched with taxpayer funds.
Fund managers may then choose to use leverage pursuant to the Legacy Term Asset-Backed Securities Loan Facility.
Several high-profile individuals at the firms have made clear their interest in the program.
Bill Gross, co-chief investment manager at PIMCO of Newport Beach, Calif., has been particularly vocal about his support of PPIP, calling it a win-win-win policy.
Laurence Fink, chairman and chief executive of New York-based BlackRock, has also been a staunch supporter of the program, and so has Martin L. Flanagan, president and chief executive of Invesco in Atlanta.
We strongly believe that [PPIP] will help stimulate the mortgage market and provide individual and institutional investors globally with compelling investment opportunities in the Legacy Securities and Legacy Loan programs, Mr. Flanagan said in an April 27 statement.
The Legacy Loan program calls for banks to sell pools of residential mortgages to individuals and institutions through the Federal Deposit Insurance Corp.
That part of PPIP appears to be on hold, partly as a result of banks reluctance to take part out of concern that they wouldnt be getting what the loans were worth, attorneys familiar with PPIP said.