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PPIP manager lineup wins praise

Financial advisers voiced their approval of the asset managers selected last week to run funds for the legacy…

Financial advisers voiced their approval of the asset managers selected last week to run funds for the legacy securities portion of the government’s Public-Private Investment Program, with many saying that they plan to take a close look at the products that those managers introduce.

But they also expressed surprise that the list didn’t include Pacific Investment Management Co. of Newport Beach, Calif.

Pimco was considered by many industry watchers to be a shoo-in PPIP participant. But the company withdrew its application last month because of “uncertainties” about the design of the program, said Pimco spokesman Mark Porterfield.

The Department of the Treasury on April 29 announced the receipt of more than 100 applications from fund managers interested in participating in the legacy securities portion of PPIP.

Under the legacy securities program, managers will purchase pools of toxic mortgage-backed and mortgage-related securities from banks and other financial institutions.

Those managers selected last week were:

• AllianceBernstein LP of New York and its subadvisers, Greenfield Partners LLC of South Norwalk, Conn., and Rialto Capital Management LLC of New York.

• Angelo Gordon & Co. of New York in partnership with GE Capital Real Estate of Norwalk, Conn.

• BlackRock Inc. of New York.

• Invesco Ltd. of Atlanta.

• Marathon Asset Management LP of New York.

• Oaktree Capital Management LP of Los Angeles.

• RLJ Western Asset Management LP, a joint venture between Western Asset Management Co. of Pasadena, Calif., the fixed-income unit of Legg Mason Inc. of Baltimore, and The RLJ Cos. of Bethesda, Md., a holding company owned by Robert L. Johnson, owner of the National Basketball Association’s Charlotte Bobcats and founder of New York-based BET Networks.

• The TCW Group Inc. of Los Angeles.

• Wellington Management of Boston.

Pimco’s decision not to participate in the program raises a potential red flag, said Diane Pearson, an adviser with Legend Financial Advisors Inc., a Pittsburgh-based firm that manages $350 million.

“But I don’t know if that would stop us from participating,” because PPIP funds may offer investors the deal of a lifetime, she said.

Because troubled mortgage-related securities are so beaten down, the potential for appreciation is huge, said Lewis J. Altfest, president of New York-based L.J. Altfest & Co., which manages about $500 million in assets.

“I could be interested … where I like the manager,” he said.

The government’s lineup of managers appears solid, according to industry observers.

“They have some pretty strong names,” said Ms. Pearson, who added that she is particularly impressed by the inclusion of BlackRock.

“We have used their funds for numerous years,” she said.

Other names may not be as well-known, such as Angelo Gordon and Marathon Asset Management, both of which specialize in alternative investments.

But the companies are highly regarded in the world of institutional money management.

But the participation of big-name managers doesn’t guarantee them a free ride when it comes to selling PPIP funds to investors.

“The big problem has been a lack of transparency,” J. Michael Martin, president of Financial Advantage Inc., said of the moribund market for mortgage-related securities. “If I was to think of investing client money, I would want to solve that problem,” said Mr. Martin, whose Columbia, Md.-based firm has $250 million in assets under management.

It isn’t clear, however, how the government will address the issue of transparency.

A senior Treasury official gave no assurance that prices paid for mortgage-related securities will be made public.

That is one of several issues likely to face PPIP managers, who have 12 weeks to raise at least $500 million of capital that would serve as the investment base that, pending further approval, would be matched with taxpayer funds.

Fund managers may then choose to use leverage pursuant to the Legacy Term Asset-Backed Securities Loan Facility. They hope that the resulting funds would be attractive to investors.

But to put together their funds, the asset managers need banks to be willing to sell them their troubled mortgaged-related securities, and some industry experts said that that is a stumbling block.

Banks may be reluctant to take part out of concern that they wouldn’t be getting what the securities were worth, said Michael Herbst, an analyst with Morningstar Inc. of Chicago.

Such questions may have convinced Pimco that participating in PPIP was more trouble than it was worth, he said.

E-mail David Hoffman at [email protected].