Tag Archives: PPIP

Another PPIP Closing

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The following Treasury press release can be found here.  Please also see the article on earlier PPIP closings.

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Treasury Announces Additional initial closing of Legacy Securities Public Private Investment Fund

November 5, 2009
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Treasury Department Announces Additional initial closing of Legacy Securities Public Private Investment Fund

WASHINGTON — The U.S. Department of the Treasury today announced that RLJ Western Asset Management, LP, has completed an initial closing of a Public-Private Investment Fund (PPIF) established under the Legacy Securities Public-Private Investment Program (PPIP).  RLJ Western Asset Management, LP, is a minority-owned partnership between The RLJ Companies, LLC and Western Asset Management.

To date, seven PPIFs have completed initial closings on approximately $4.09 billion of private sector equity capital which has been matched 100 percent by Treasury, representing $8.18 billion of total equity capital.  Treasury has also provided $8.18 billion of debt capital, representing $16.36 billion of total purchasing power for all PPIFs.

Treasury expects initial closings for the remaining two PPIFs to be announced soon.  Following an initial closing, each PPIF has the opportunity to conduct additional closings over the following six months to receive matching Treasury equity and debt financing, with a total Treasury equity and debt investment in all PPIFs equal to $30 billion ($40 billion including private investor capital).  Treasury will continue to provide updates as subsequent PPIF closings occur.

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Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog and can be reached directly at 415-868-5345.

PPIP and Hedge Fund Closings

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Treasury Announces Closings and Releases Draft LPA

Last week the Treasury announced the initial closing of some funds under the PPIP.

The Treasury also released the draft form of the PPIP Limited Partnership Agreement.  The draft LPA is similar to a limited partnership agreement which you would be part of traditional hedge fund offering documents but are unique in a number of ways.

The following press release can be found here.

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October 5, 2009
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Treasury Department Announces Additional Initial Closings of Legacy Securities Public -Private Investment Funds

WASHINGTON — The U.S. Department of the Treasury today announced three additional initial closings of Public-Private Investment Funds (PPIFs) established under the Legacy Securities Public-Private Investment Program (PPIP).  AllianceBernstein, LP and its sub-advisors Greenfield Partners, LLC and Rialto Capital Management, LLC; BlackRock, Inc.; and Wellington Management Company, LLP have completed initial closings, each with at least $500 million of committed equity capital from private investors bringing the total number of initial closings completed to five and total committed equity and debt capital to $12.27 billion.

Small, minority-, and women-owned businesses that are partnering with the fund managers that have completed initial closings include:
Advent Capital Management, LLC
Altura Capital Group, LLC
Utendahl Capital Management

“The PPIP continues to grow,” said Herb Allison, Assistant Secretary for Financial Stability, “Private capital is being drawn into the market for legacy securities and taxpayers are being given a chance to share in the profits.”

Treasury expects that the remaining initial closings for the other PPIFs will occur throughout October.  Following an initial closing, each PPIF will have the opportunity for two more closings over the following six months to receive matching Treasury equity and debt financing, with a total Treasury equity and debt investment in all PPIFs equal to $30 billion ($40 billion including private investor capital).  Treasury will be providing updates as additional PPIF closings occur.

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Hedge Fund PPIP Managers Selected

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Treasury and Fed Name Lucky Hedge Fund Managers

The Treasury and the Fed just announced the hedge fund management companies which will be participating in the first round of the PPIP.  The following press release can be found here.

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July 8, 2009
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Joint Statement by Secretary of the Treasury Timothy F. Geithner,
Chairman of the Board of Governors of the Federal Reserve System
Ben S. Bernanke, and Chairman of the Federal Deposit Insurance Corporation
Sheila Bair on the Legacy Asset Program

To view the Letter of Intent and Term Sheets, please visit link.
To view the Conflict of Interest Rules, please visit link.
To view the Legacy Securities FAQs, please visit link.

The Financial Stability Plan, announced in February, outlined a framework to bring capital into the financial system and address the problem of legacy real estate-related assets.

On March 23, 2009, the Treasury Department, the Federal Reserve, and the FDIC announced the detailed designs for the Legacy Loan and Legacy Securities Programs. Since that announcement, we have been working jointly to put in place the operational structure for these programs, including setting guidelines to ensure that the taxpayer is adequately protected, addressing compensation matters, setting program participation limits, and establishing stringent conflict of interest rules and procedures. Recently released rules are detailed separately in the Summary of Conflicts of Interest Rules and Ethical Guidelines.

Today, the Treasury Department, the Federal Reserve, and the FDIC are pleased to describe the continued progress on implementing these programs including Treasury’s launch of the Legacy Securities Public-Private Investment Program.

Financial market conditions have improved since the early part of this year, and many financial institutions have raised substantial amounts of capital as a buffer against weaker than expected economic conditions.  While utilization of legacy asset programs will depend on how actual economic and financial market conditions evolve, the programs are capable of being quickly expanded if these conditions deteriorate.  Thus, while the programs will initially be modest in size, we are prepared to expand the amount of resources committed to these programs.

Legacy Securities Program

The Legacy Securities program is designed to support market functioning and facilitate price discovery in the asset-backed securities markets, allowing banks and other financial institutions to re-deploy capital and extend new credit to households and businesses. Improved market function and increased price discovery should serve to reinforce the progress made by U.S. financial institutions in raising private capital in the wake of the Supervisory Capital Assessment Program (SCAP) completed in May 2009.

The Legacy Securities Program consists of two related parts, each of which is designed to draw private capital into these markets.

Legacy Securities Public-Private Investment Program (“PPIP”)

Under this program, Treasury will invest up to $30 billion of equity and debt in PPIFs established with private sector fund managers and private investors for the purpose of purchasing legacy securities.  Thus, Legacy Securities PPIP allows the Treasury to partner with leading investment management firms in a way that increases the flow of private capital into these markets while maintaining equity “upside” for US taxpayers.

Initially, the Legacy Securities PPIP will participate in the market for commercial mortgage-backed securities and non-agency residential mortgage-backed securities.  To qualify, for purchase by a Legacy Securities PPIP, these securities must have been issued prior to 2009 and have originally been rated AAA — or an equivalent rating by two or more nationally recognized statistical rating organizations — without ratings enhancement and must be secured directly by the actual mortgage loans, leases, or other assets (“Eligible Assets”).

Following a comprehensive two-month application evaluation and selection process, during which over 100 unique applications to participate in Legacy Securities PPIP were received,  Treasury has pre-qualified the following firms (in alphabetical order) to participate as fund managers in the initial round of the program:

  • AllianceBernstein, LP and its sub-advisors Greenfield Partners, LLC and Rialto Capital Management, LLC;
  • Angelo, Gordon & Co., L.P. and GE Capital Real Estate;
  • BlackRock, Inc.;
  • Invesco Ltd.;
  • Marathon Asset Management, L.P.;
  • Oaktree Capital Management, L.P.;
  • RLJ Western Asset Management, LP.;
  • The TCW Group, Inc.; and
  • Wellington Management Company, LLP.

Treasury evaluated these applications according to established criteria, including: (i) demonstrated capacity to raise at least $500 million of private capital; (ii) demonstrated experience investing in Eligible Assets, including through performance track records; (iii) a minimum of $10 billion (market value) of Eligible Assets under management; (iv) demonstrated operational capacity to manage the Legacy Securities PPIP funds in a manner consistent with Treasury’s stated Investment Objective while also protecting taxpayers; and (iv) headquartered in the United States.  To ensure robust participation by both small and large firms, these criteria were evaluated on a holistic basis and failure to meet any one criterion did not necessarily disqualify an application.

Each Legacy Securities PPIP fund manager will receive an equal allocation of capital from Treasury.  These Legacy Securities PPIP fund managers have also established meaningful partnership roles for small-, veteran-, minority-, and women-owned businesses. These roles include, among others, asset management, capital raising, broker-dealer, investment sourcing, research, advisory, cash management and fund administration services.  Collectively, the nine pre-qualified PPIP fund managers have established 10 unique relationships with leading small-, veteran-, minority-, and women-owned financial services businesses, located in five different states, pursuant to the Legacy Securities PPIP.  Moreover, as Treasury previously announced, small-, veteran-, minority-, and women-owned businesses will continue to have the opportunity to partner with selected fund managers following pre-qualification.  Set forth below is a list (in alphabetical order) of the established small-, veteran-, minority-, and women-owned businesses partnerships:

  • Advent Capital Management, LLC;
  • Altura Capital Group LLC;
  • Arctic Slope Regional Corporation;
  • Atlanta Life Financial Group, through its subsidiary Jackson Securities LLC;
  • Blaylock Robert Van, L.L.C.;
  • CastleOak Securities, LP;
  • Muriel Siebert & Co., Inc.;
  • Park Madison Partners LLC;
  • The Williams Capital Group, L.P.; and
  • Utendahl Capital Management.

In addition to the evaluation of applications, Treasury has conducted legal, compliance and business due diligence on each pre-qualified Legacy Securities PPIP fund manager.  The due diligence process encompassed, among other things, in-person management presentations and limited partner reference calls.  Treasury has negotiated equity and debt term sheets (see attached link for the terms of Treasury’s equity and debt investments in the Legacy Securities PPIP funds) for each pre-qualified Legacy Securities PPIP fund manager.  Treasury will continue to negotiate final documentation with each pre-qualified fund manager with the expectation of announcing a first closing of a PPIF in early August.

Each pre-qualified Legacy Securities PPIP fund manager will have up to 12 weeks to raise at least $500 million of capital from private investors for the PPIF.  The equity capital raised from private investors will be matched by Treasury.  Each pre-qualified Legacy Securities PPIP fund manager will also invest a minimum of $20 million of firm capital into the PPIF.  Upon raising this private capital, pre-qualified Legacy Securities PPIP fund managers can begin purchasing Eligible Assets.  Treasury will also provide debt financing up to 100% of the total equity of the PPIF.  In addition, PPIFs will be able to obtain debt financing raised from private sources, and leverage through the Federal Reserve’s and Treasury’s Term Asset-Backed Securities Loan Facility (TALF), for those assets eligible for that program, subject to total leverage limits and covenants.

Legacy Securities and the Term Asset-Backed Securities Loan Facility

On May 19, 2009, the Federal Reserve Board announced that, starting in July 2009, certain high-quality commercial mortgage-backed securities issued before January 1, 2009 (“legacy CMBS”) would become eligible collateral under the TALF. The Federal Reserve and the Treasury also continue to assess whether to expand TALF to include legacy residential mortgage-backed securities as an eligible asset class.

The CMBS market, which has financed approximately 20 percent of outstanding commercial mortgages, including mortgages on offices and multi-family residential, retail and industrial properties, came to a standstill in mid-2008. The extension of eligible TALF collateral to include legacy CMBS is intended to promote price discovery and liquidity for legacy CMBS. The announcements about the acceptance of CMBS as TALF collateral are already having a notable impact on markets for eligible securities.

Legacy Loan Program

In order to help cleanse bank balance sheets of troubled legacy loans and reduce the overhang of uncertainty associated with these assets, the FDIC and Treasury designed the Legacy Loan Program alongside the Legacy Securities PPIP.

The Legacy Loan Program is intended to boost private demand for distressed assets and facilitate market-priced sales of troubled assets. The FDIC would provide oversight for the formation, funding, and operation of a number of vehicles that will purchase these assets from banks or directly from the FDIC. Private investors would invest equity capital and the FDIC will provide a guarantee for debt financing issued by these vehicles to fund asset purchases. The FDIC’s guarantee would be collateralized by the purchased assets.  The FDIC would receive a fee in return for its guarantee.

On March 26, 2009, the FDIC announced a comment period for the Legacy Loan Program, and has now incorporated this feedback into the design of the program. The FDIC has announced that it will test the funding mechanism contemplated by the LLP in a sale of receivership assets this summer. This funding mechanism draws upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage. The FDIC expects to solicit bids for this sale of receivership assets in July. The FDIC remains committed to building a successful Legacy Loan Program for open banks and will be prepared to offer it in the future as needed to cleanse bank balance sheets and bolster their ability to support the credit needs of the economy. In addition, the FDIC will continue to work on ways to increase the utilization of this program by open banks and investors.

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Please contact us if you have a question on this issue or if you would like to start a hedge fund.  If you would like more information, please see our articles on starting a hedge fund.

Bart Mallon, Esq. runs hedge fund law blog and has written most all of the articles which appear on this website.  Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund.  If you are a hedge fund manager who is looking to start a hedge fund, please call Mr. Mallon directly at 415-296-8510.

Over 100 Hedge Fund Managers Apply For PPIP

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The Treasury announced today that they received over 100 applications from fund managers who want to participate in the Public Private Investment Program (PPIP).  There have been a number of questions regarding the structure of investment vehicles under the PPIP.  In addition to the Treasury release from earlier today, I have included below some additional information on the PPIP that might be useful to hedge fund managers who are thinking of participating in this program in the future.

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Treasury Announces Receipt of Applications to Become Fund Managers under Public Private Investment Program

Washington, DC — The Treasury Department today announced the receipt of more than 100 unique applications from potential fund managers interested in participating in the Legacy Securities portion of the Public Private Investment Program (PPIP).  A variety of institutions applied, including traditional fixed income, real estate, and alternative asset managers.

Successful applicants must demonstrate a capacity to raise private capital and manage funds in a manner consistent with Treasury’s goal of protecting taxpayers.   Treasury will also evaluate the applicant’s depth of experience investing in eligible assets. Finally, the applicant must be headquartered in the United States.

Treasury expects to inform applicants of their preliminary qualification around May 15, 2009. Once a fund receives preliminary qualification, it can begin raising the expected minimum of $500 million in private capital that will serve as the investment that, pending further approval, will be matched with taxpayer funds.  As we have stated previously, Treasury anticipates opening the program to smaller fund managers in the future, which may result in a lower minimum private capital raising requirement.

Since announcing the program details on March 23, Treasury has encouraged small, veteran, minority and women owned private asset managers to partner with other private asset managers. On April 6, Treasury extended the deadline for fund manager applications to provide more time to facilitate these types of partnerships. We are pleased to see a number of creative partnership proposals among the applications we are currently evaluating.

Today’s announcement is the latest milestone in making operational the PPIP for legacy loans and securities, a key part of the Administration’s efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

For further information on the PPIP, please visit:

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Public-Private Investment Program

Updated: April 6, 2009

To address the challenge of legacy assets, Treasury – in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve – has announced the Public-Private Investment Program as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

Three Basic Principles: Using $75 to $100 billion in TARP capital and capital from private investors, the Public-Private Investment Program will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time. The Public-Private Investment Program will be designed around three basic principles:

  • Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.
  • Shared Risk and Profits With Private Sector Participants: Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing t o lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.
  • Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.

The Merits of This Approach: This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly. Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience. But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases – along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.

Two Components for Two Types of Assets: The Public-Private Investment Program has two parts, addressing both the legacy loans and legacy securities clogging the balance sheets of financial firms:

  • Legacy Loans: The overhang of troubled legacy loans stuck on bank balance sheets has made it difficult for banks to access private markets for new capital and limited their ability to lend.
  • Legacy Securities: Secondary markets have become highly illiquid, and are trading at prices below where they would be in normally functioning markets. These securities are held by banks as well as insurance companies, pension funds, mutual funds, and funds held in individual retirement accounts.

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PPIP Whitepaper

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Legacy Securities Termsheet

Fund Structure

Treasury and a vehicle controlled by the applicable Fund Manager through which private investors will invest in a Fund (each, a “Private Vehicle”) will be the sole investors in a Fund. Additional detail with respect to Fund Structure can be found under “Fund Structure Detail” below.

Pre-Qualification of Fund Managers

Private asset managers wishing to participate in this program should submit the application found at http://www.financialstability.gov/ to Treasury as part of the selection process. Fund Managers will be pre-qualified based upon criteria that are anticipated to include:

  • Demonstrated capacity to raise at least $500 million of private capital.
  • Demonstrated experience investing in Eligible Assets, including through performance track records.A minimum of $10 billion (market value) of Eligible Assets under management.
  • Demonstrated operational capacity to manage the Funds in a manner consistent with Treasury’s stated Investment Objective while also protecting taxpayers.
  • Headquarters in the United States.

Other criteria are identified in the application. Treasury will consider suggestions from Fund Managers to raise equity capital from retail investors.

3 year lock up period

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Q&A on the Program

Legacy Securities FAQs

How are Legacy TALF and the Legacy Securities PPIP related?

Legacy TALF and the Legacy Securities PPIP are separate programs. Legacy TALF will be a Federal Reserve lending program with its own set of terms, conditions and eligibility requirements. Legacy TALF will be made widely available to investors (who meet Federal Reserve eligibility standards) regardless of whether or not they participate in the Legacy Securities PPIP. Pre-qualified Fund Managers in the Legacy Securities PPIP may choose to utilize leverage pursuant to the Legacy TALF program, when it becomes operational and subject to its terms and conditions. For the avoidance of doubt, a qualified investor utilizing Legacy TALF will do so on the same terms and conditions as a Legacy Securities PPIP investor utilizing Legacy TALF.

Will Treasury require pre-qualified Fund Managers to raise a minimum level of private capital?

Yes. In the initial group, pre-qualified Fund Managers will be expected to raise at least $500 million of private capital. However, as discussed above, Treasury currently anticipates opening the program to smaller Fund Managers in the future which may result in a lower minimum private capital raising requirement.

Will Treasury provide a public list of all pre-qualified Fund Managers?

Yes. Treasury expects to provide a public list including only the pre-qualified Fund Managers.

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Please contact us if you have a question on this issue or if you would like to start a hedge fund.  If you would like more information, please see our articles on starting a hedge fund.