Money managers registered strong returns as part of the U.S. government's Public-Private Investment Program that began after the global financial crisis, closing out gains in the mid-20% range over the roughly three-year period, according to a report from the Treasury Department.
In December, when Los Angeles-based Oaktree Capital Group LLC was the eighth and final manager to finish up investing, the firm posted a 26.3% internal rate of return on the $2.22 billion it ran, which ranked it first among the returns of all managers in the program.
“All the managers did incredibly well (in terms of performance), so I think the government's plan was a great success for both the Treasury and investors,” said Andrew Rabinowitz, a partner and the chief operating officer of participating manager Marathon Asset Management LP in New York.
All combined, the eight managers had more than $29.9 billion of purchasing power to invest in the public-private investment partnership through a mixture of money raised from institutional investors, matching government funds and low-interest government loans. Through the government program, the managers' mandate was to buy troubled mortgages on banks' balance sheets in order to ease the marketplace for mortgage-backed securities and to encourage banks to increase lending.
Oaktree's fund started in February 2010; all of the others started during the fourth quarter of 2009.
Following Oaktree's fund was the AG GECC PPIF Master Fund LP, a fund jointly run by Angelo Gordon & Co. and General Electric Capital Corp. which experienced a net IRR of 24.8% since inception. Marathon Legacy Securities Public-Private Investment Partnership LP earned 24.6%.
Marathon was followed by a partnership between Western Asset Management Co. and the RLJ Cos., at 24.1%; BlackRock Inc., at 23.1%; Wellington Management Co. LLP, at 20.1%; and AllianceBernstein LP, at 18.7%. Finally, the Invesco Legacy Securities Master Fund LP garnered a net IRR of 18.2%.
Although the Treasury originally chose nine funds to participate in the PPIP program, TCW Group was forced to liquidate its fund in 2009 after its then-chief investment officer, Jeffrey Gundlach, was ousted.
“All of these managers are pretty savvy investors, so although some of their investment styles are varied, we were bullish on the entire program,” said Bryon Willy, a principal at Mercer Investment Consulting in Chicago. “We were not surprised at all that we saw that convergence of returns over time.”
In fact, a report that Mercer released in September 2009 (shortly before any of the funds' inception dates) revealed the consulting firm's estimates for final returns wound up hewing pretty close to the actual results.
“Our analysis estimates average annual net returns in the 15%-to-17% range for an equal-weighted average of 15%, 20% and 25% gross return outcomes,” the report stated.