The government’s plan to have private money managers partner with the Treasury to buy and manage banks’ toxic assets has attracted more than 100 applicants, according to a person familiar with the program.
The deadline to apply was Friday. The government has said it expects to pick a relative handful of money managers to launch the program, but could add more later.
The list of applicants includes Southern California’s three biggest bond-market investors: Newport Beach-based Pacific Investment Management Co., known as Pimco, TCW Group in Los Angeles and Western Asset Management in Pasadena, spokesmen for the firms confirmed.
Another bond giant, BlackRock Inc. in New York, also has applied. So did private-equity investor Wilbur Ross, in partnership with money manager Invesco. Smaller financial companies also were encouraged to step up when the Treasury broadened its qualification standards April 6.
The turnout at least shows that many fund managers believe they can make money off the program. And if they make money, taxpayers should as well -- if all goes as planned, and if fraud and self-dealing aren’t rampant.
The public-private investment program, unveiled in March, calls for money managers to invest alongside the government to buy banks’ troubled assets. Treasury Secretary Timothy F. Geithner envisions these partnerships buying up to $1 trillion of toxic debt to unburden banks.
The program has two parts: one to buy bank loans, the other to buy securities the banks own, including mortgage-backed bonds. The application process is for financial companies that want to buy and manage securities.
The plan calls for the managers to put up some of their own capital, or capital they raise from interested investors (which may include individuals), to bid for the toxic debt. The government would match the private capital contributed. The purchases would then be leveraged using government loans.
The idea is for the managers to pay prices high enough to coax the banks to sell -- and thereby unburden themselves -- but low enough to turn a profit on the securities down the road, either by selling them to other investors or by waiting for the loans underlying the bonds to pay off.
The private investors and the government would share in any long-term profit or loss. The managers also would earn fees for their work.
What still isn’t clear, however, is whether banks will be willing to sell rotten securities in volumes big enough to make it worthwhile for the fund managers and the government.