Treasury Names Nine Firms to Manage Toxic Asset Program

The Treasury Department named nine financial services firms to act as fund managers for the federal government’s $30 billion effort to buy bad mortgage assets from banks.

The Legacy Securities Public-Private Investment Program was initially seen as a critical element of the bailout package.  With billions of dollars of so-called “toxic securities” weighing down the nation’s banks, experts said the government had to create a market for them to get credit flowing and get the economy moving again.

When the Treasury,  the Federal Reserve and the Federal Deposit Insurance Corp.,  first announced the program in March, they said they would make as much as $1 trillion in public money available for asset purchases.  But uncertainty about the effectiveness and efficiency of the program delayed its implementation and lowered its budget.

The firms that won the rights to manage the public-private funds that will buy the toxic securities were AllianceBernstein LP; Angelo, Gordon & Co. LP and GE Capital Real Estate; BlackRock, Inc.; Invesco Ltd.; Marathon Asset Management L.P.; Oaktree Capital Management, LP; RLJ Western Asset Management LP; The TCW Group Inc.; and Wellington Management Company, LLP.

Although each firm will receive an equal allocation of funds from the Treasury to buy assets, under the terms of the management agreements, each is expected to invest as much as $10 billion of its own money. To qualify for the project, the firms had to prove its ability to raise at least $500 million of private capital within twelve weeks and commit to investing at least $20 million of it.

Other requirements included a minimum of $10 billion of “eligible assets” under management and a demonstrated operational capacity to manage the funds.

Pacific Investment Management Co., better known as Pimco, said it withdrew its application to become one of the fund managers in early June. It had been viewed as almost certain pick.

Pimco, which is one of the biggest buyers and sellers in the bond market, did not explain its decision. But some observers had questioned whether the company’s extensive trading activities would create too many conflicts of interest with the government’s toxic-securities program.

Treasury also qualified a number of small-, veteran-, minority-, and women-owned businesses to partner with the winning fund managers. They included Advent Capital Management LLC; Altura Capital Group LLC; Arctic Slope Regional Corporation; Atlanta Life Financial Group; Blaylock Robert Van LLC.; CastleOak Securities LP; Muriel Siebert & Co. Inc.; Park Madison Partners LLC; The Williams Capital Group LP.; and Utendahl Capital Management.

Treasury did not post copies of its contracts with the financial management firms, though its transparency policy allows it five to ten days since closing to do so.

BailoutSleuth will continue to monitor the story and update readers accordingly.

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