Most of the money managers participating in the government's PPIP effort earned double-digit net internal rates of return during the first few years of the program, a government report shows.
The Treasury Department report on the managers in the Legacy Securities Public-Private Investment Program offers a rare glimpse into private placements.
“This is a really unique opportunity for the pension world and investment community to see eight managers side by side in the same market at the same time buy (residential mortgage-backed securities) and (commercial MBS) assets and see how divergent the results are,” said Jonathan Lieberman, managing director, Angelo Gordon & Co., New York, a firm participating in the program.
The latest Treasury Department report, released April 19, comes as the first phase of the program is nearing its end. Under the program's rules, managers cannot continue to invest or reinvest the billions of dollars in their PPIP funds after three years, even though the funds can continue operation for up to eight years. Most of the funds were launched in the third quarter of 2009.
And one fund — the Invesco Legacy Securities Master Fund LP — liquidated in March after managers concluded they would not be able to sustain its 18.2% IRR.
According to the report, Oaktree Capital Group's PPIP Fund LP generated the highest return, reporting 20.9% from inception through March 31. Oaktree's fund started in February 2010; all of the others started during the fourth quarter of 2009.
Oaktree was followed by a partnership between Angelo Gordon and General Electric Capital, at 20.2%; a partnership between Western Asset Management and the RLJ Cos., with 19.1%: Invesco, 18.2%; BlackRock, 17%; AllianceBernstein, 16.7%; and Marathon, 14.5%, according to the report.
The eighth manager, Wellington Investments, garnered a much smaller 7.6% return.
(There originally were nine funds chosen by the U.S. Treasury Department to participate in the government-subsidized effort to buy toxic residential and commercial mortgages from overleveraged banks, but TCW Group was forced to liquidate its fund when then-Chief Investment Officer Jeffrey Gundlach was ousted late in 2009.)
It's unclear why Wellington lagged the others. Sara Lou Sherman, a spokeswoman for Wellington Management Co. LLP declined to comment; the Treasury Department doesn't provide information on securities the managers hold or their trading activity.
Six of the eight managers purchased both CMBS and RMBS; Oaktree restricted itself to the purchase of commercial mortgage-backed securities, while Invesco Ltd. bought only residential ones.
The eight managers had more than $29 billion combined to invest in the public-private partnership, a mixture of money raised from institutional investors, matching government funds and low-interest government loans. Their mandate: Buy the troubled mortgages weighing down bank balance sheets as part of the effort to ease the marketplace for MBS and encourage banks to increase lending.
Michael Anderson, a spokesman for the Treasury Department in Washington, said the PPIP program was just one part of an overall strategy for economic recovery.
“We believe it's been effective,” he said of the PPIP program, citing the positive returns of the money managers. It's unclear how long the PPIP will continue. The money managers say they haven't made a decision what they will do after the three years are up and they can no longer buy new mortgage assets or sell assets and reinvest under the program.
Atlanta-based Invesco, in announcing on April 3 that it had liquidated its $3.4 billion fund, reported the Treasury Department had received a total of $791 million on its initial equity investment of $581 million and the repayment plus interest of $1.2 billion in loans.