The money that the government intended to match would also be coming out of the oft-maligned Troubled Asset Relief Program and only a scant nine measured up to the Treasury criteria. A combination of Angelo Gordon and GE, BlackRock Inc., Invesco Ltd., Marathon Asset, Oaktree Capital, RLI Western, and Wellington Management were allowed to play in the Treasury's sandbox. Black Rock declined to comment. Invesco and Wellington had no comment, while the remaining participants and the US Treasury Department did not respond to multiple inquiries for comment.

After two quarters of activity, March 2010 ended with the PPIP fund managers raising $6.3 billion in private equity, bolstered by matched funding from the government, for a total of$12.5 billion. The Treasury also brought $12.5 billion of debt.

GE Capital, Angelo, Gordon Close $58 PPIP Fund

Norwalk, CT-based GE Capital Real Estate and New York City-based Angelo, Gordon & Co. recently closed on a $5-billion Legacy Securities Public-Private Investment Fund. The fund was launched in October 2009.

With total commitments of nearly $1.25 billion from investors and an additional $3.7 billion in matching capital and leverage from the US Treasury Department, the fund has approximately $5 billion to invest in eligible RMBS and CMBS. GE Capital and Angelo, Gordon were selected last year as a fund manager to participate in the Obama administration's Legacy Securities PublicPrivate Investment Program.

A spokesman for GE Capital tells DAI that SEC regulations prohibit divulging specifics on the fund's investment plans to a general audience. He adds, however, that the fund will be geared strictly to purchasing legacy securities through the PPIP program rather than new issues.

"Raising a fund of this size in the current economic environment is a significant achievement, and in line with our strategy of launching an investment management business," said Ron Pressman, president and CEO of GE Capital, in a release. A broad cross section of investors participated in the fund, including corporate and public pensions, endowments, high-net-worth individuals and a sovereign wealth fund, the release states.

In April, the Treasury said all eight funds in the PPIP program posted a profit in the first quarter of 2010. Compared to the third quarter of 2009, the PPIP fund managers' holdings had nearly tripled as of March 31, according to the Treasury report. capital to the table, leaving the program with $25.1 billion of total purchasing power. By the end of Q 1 '09, the PPIP fund managers have drawn down roughly $10.5 billion of total capital invested. This was a far cry from the originally boasted $500 billion at the start.

"The government was surprised by the relative lack of interest," says Robert Knakal, founder and chairman of Massey Knakal "A big reason why you didn't see more people wanting to get involved was that the government was creating policy as they went along." He points out that there was a lot of skepticism and a general lack of faith among investors who felt the Treasury might "change the rules of the game" on a whim.

Roughly 88% of the portfolio holdings are non-agency residential mortgage backed securities and only 12%, or $1.2 billion, are CMBS. Of those, $309 million are super-senior debt, $393 million are triple-A rated mezz loans, $346 million are triple-A junior and $141 million are other CMBS.

The Angelo Gordon/GE fund has recorded the highest rate of cumulative net performance, at 20.6%, which is almost double the runner-up, BlackRock. The Treasury's report, however, notes that "early performance may be disproportionately impacted by structuring, transaction costs and the pace of capital deployment." There are at least two-and-a-half more years left for the PPIP funds to invest, however, as the market returns and institutional investors emerge from hibernation, the relevance of the program is being put into further question.

"Clearly fundamentals look like they're getting better and it could be that these investors will have competition from non- PPIP buyers. Most of the activity in the PPIP investments have been in MBS, so from a commercial real estate point of view, you're talking about less than $1 billion of MBS activity that has occurred within the PPIP," Knakal relates.

Noticeably absent from the first quarter report is TCW Capital, which found itself liquidated after violating one of the tenets of PPIP's participation requirements. After a reported $358 million investment, TCW-by letting go chief investment officer Jeffery Gundlach-broke a PPIP clause barring the replacement of executives during the program. As a result, TCW's government allocated funds were redistributed to the remaining eight funds and the firm split any proceeds from toxic asset sales with the government. TCW did not return any inquiries from DAI.

With a fraction of the investment capital available and already one player disqualified, the good coming from PPIP is limited. "The minute PPIP was announced-and this includes both TALF being expanded to include commercial real estate and PPIP-you saw credit spreads compress significantly just based on the sheer existence of these programs," Knakal explains. "So there was a tangible impact based on the existence of these programs that has been much more impactful than the actual activity the programs have generated."

Regardless of its intentions or value, PPIP, Knakal adds, took so long to get into the mix that the party had already started to wrap up by the time it showed up. "The conditions that existed at the time these programs were contemplated and formulated ceased to exist a month or two after the programs were announced," he notes. "It's not surprising that that amount of activity was wellbelow what was expected."

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