With Firms Chosen, PPIP Comes Knocking

(September 17, 2009) – Asset management firms chosen by the government to participate in a program to purchase “toxic assets” are beginning to court America’s public pension plans.
 

The firms participating in the Private-Public Investment Partnerships (PPIP)—BlackRock; AllianceBernstein; Oaktree Capital Management; Invesco; Angelo, Gordon & Co.; Marathon Asset Management; Legg Mason’s Western Asset Management; The TCW Group; and Wellington Management Company—are aiming to raise up to $1.1 billion each, which will be matched by low-interest government loans. They will invest in mortgage-backed securities and other distressed debt vehicles, taking them off the books of the banks and insurance funds in hopes of freeing up credit.

While many funds have stayed quiet regarding their interest in the PPIP program, some public schemes are now known to have an interest—one such group: the Connecticut state pension funds overseen by State Treasurer Denise Nappier. Recent memos obtained by Bloomberg suggest that the $20 billion pension system is currently in the process of deciding whether to invest with the designated PPIP firms. According to the memos, the bidding firms—which Nappier and her team have narrowed to four—are projecting anywhere from 13% to 20% annual returns. Connecticut is expected to make its funding decision by the end of the month.

Previously, a few reports of large-scale institutional investors moving into PPIP have emerged, the one exception being the China Investment Corporation (CIC), which has said it will invest up to $2 billion. This may be due to a widespread fear that the lockups required for distressed debt investing may be too long for pension funds that, alongside endowments, recently encountered liquidity problems. The program, some suggest, is better suited to sovereign funds such as the CIC, which, by definition, have long-term investment horizons.