The U.S. plan to help buy as much as $40 billion in assets from banks got started almost four months after it was proposed and without Pacific Investment Management Co., the world’s biggest bond manager and an early supporter.
The U.S. Treasury Department picked nine money managers yesterday for the Public-Private Investment Program, or PPIP, including BlackRock Inc. and Invesco Ltd. Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the plan’s design.
The government’s plan is a scaled-down version of a program that was once envisioned to buy as much as $1 trillion in devalued real-estate loans and mortgage-backed assets. Pimco’s reversal raises questions about the complexity and potential returns from the program, said Eric Petroff, director of research at Wurts & Associates, a Seattle-based consultant to institutional investors.
“My initial concern is that institutional investors will be a lot more cautious signing up,” Petroff said. “The mosaic is more complicated and the expected returns are less clear” than those from other government programs such as the Term Asset-Backed Securities Loan Facility, he said.
Treasury Secretary Timothy Geithner in March promoted PPIP as a way to help speed recovery of the financial markets by removing distressed debt from bank balance sheets and spurring purchases of mortgage-linked securities. At the time, Bill Gross, Pimco’s co-chief investment officer, described the program in an interview as “win-win-win.”
Pimco’s Plans
Mark Porterfield, a spokesman for Pimco, the Newport Beach, California-based unit of insurer Allianz SE of Munich, declined to comment on specific reasons that prompted the firm to withdraw. He said in an e-mail that Pimco plans to continue taking part in other financial-rescue efforts, such as TALF, designed to restart the market for consumer loans.
The 19 largest U.S. banks have raised more than $100 billion since March by selling equity, debt and assets, and some have repaid government rescue funds, easing concerns that they couldn’t handle a severe recession. The Federal Reserve has trimmed its emergency programs as the financial crisis has lessened.
“The program is a mere shadow of the original thought,” Geoff Bobroff, an independent fund consultant in East Greenwich, Rhode Island, said in an interview.
The government will invest as much as $30 billion and the nine participants may raise $10 billion or more.
Rival Managers
Pimco’s withdrawal opens the field to competitors such as New York-based BlackRock, which said it plans to raise $4 billion to $5 billion from investors. The company is eligible for as much as $1.1 billion in government funds, according to Bobbie Collins, a BlackRock spokeswoman.
The Treasury requires companies to raise at least $500 million from private investors within 12 weeks to participate.
Pimco was interested in two parts of PPIP, one buying whole loans and the other managing funds that purchase mortgage-backed securities, Gross said in March. The Treasury delayed the portion of the program targeting whole mortgages last month.
The program will start out targeting commercial mortgage- backed securities and non-agency mortgage-backed securities issued before 2009, with an initial rating of AAA or its equivalent, the Treasury said.
Pimco manages $756 billion in assets, including the largest bond fund, Pimco Total Return. The company was selected to manage other programs for the government, including one to purchase mortgage-backed securities.
