The much anticipated Public-Private Investment Program (PPIP) announced by the Treasury in March has recently commenced with the announcing of 9 financial firms charged with helping banks rid themselves of toxic RMBS and CMBS loans. Each of the 9 firms will be charged with raising at least $500 million over the next few months, which in turn, will be matched 100% with taxpayer money. In addition, non-recourse leverage will also be available, allowing the opportunity to manage a fund of several billion dollars by Q4, targeted at snapping up one-time AAA-rated bonds. With an applicant pool of over 100, the government’s selection of these 9 serves as a stamp of approval in their ability to raise capital in such a difficult environment. Through constant dialogue with institutional and private investors, BHA analysts have witnessed strong opinions for both arguments.
Investors in opposition to the program have expressed concerns over a variety of issues. The application withdrawal from PIMCO has seen much publicity over the past few weeks, and has left some questioning why such a firm would remove themselves from consideration. Recent light has been shed on many large endowments and other institutional investors suffering due to their over commitments to private equity investments, and as a result liquidity has become paramount; liquidity which will not be found in PPIP. Two of the largest concerns from investors over the past week have been the extent to which the government may change the “rules” and the ultimate question of if the banks are even willing to sell these assets on the heels of a strong Q1.
On the other side of the coin, BHA analysts’ have heard from a number of investors that are conducting further research on the program. One category of investors that will be conducting the bulk of this research will be the larger investment consultants who serve in a fiduciary role to a sizeable portion of pension funds, endowments, foundations and other tax exempt organizations. A Managing Director at a large west-coast consulting firm noted that he has had many clients inquire about the program and as a result, it is actively gathering as much information as possible on the plan in order to make specific recommendations. In addition, the CIO at a large government pension plan in the United States expressed interest in the program, and understands the time constraints involved with making such a decision. The plan’s investment committee recently met to discuss PPIP along with other asset allocation moves.
PPIP is not for everyone. Investor responses have been mixed and perhaps slightly skewed towards non-interest due to the number of questions which are not readily answered. However, investors with a long-term outlook and a willingness to partner with the government in a recovery effort may have the opportunity to reap the rewards.