Private Equity News & Analysis

PPIP squeaks

As TCW hands back capital to investors in its now-defunct PPIP fund, some are questioning the very existence of the US government stimulus plan.

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The recent implosion of a TCW fund slated to participate in the US government’s Public Private Investment Program has led some market observers to question the very existence of the programme.

TCW fired its chief investment officer Jeffrey Gundlach, a key man in the PPIP UST/TCW Senior Mortgage Securities Fund, amid allegations he had threatened to leave the company taking key personnel with him.
US Treasury decided to dissolve the fund and offered investors the option to transfer their money to other PPIP funds.

TCW was one of the first managers to raise $500 million as part of the programme, which is meant to buy toxic assets off the balance sheets of banks. The US Treasury pre-selected nine managers to take part in the programme, mandating them to raise a minimum of $500 million for a first close.

Oaktree Capital Management was the last manager to hold a first close on its fund on 18 December, raising an estimated $400 million in private capital, according to people familiar with the matter. Managers were initially given 12 weeks to raise a minimum of $500 million, however those thresholds slipped as some investment firms struggled to secure the required capital.

PPIP has $24 billion available, with $6 billion raised by private managers. The private capital will be matched by the government and then doubled with Treasury financing. If TCW investors choose to not transfer their money, the total amount will be reduced by $2 billion.

TCW investors may not redeploy their returned capital into other PPIP funds as some have begun to wonder whether US government programmes, such as PPIP, are, rather than injecting needed liquidity into the market, instead overdoing what the free market has already done, sources tell PEI.

Starwood Capital chief executive officer Barry Sternlicht raised such concerns at the Knowledge@Wharton Road to Recovery real estate forum in December, warning a “liquidity bubble” was forming as a cadre of “capital tourists” searched for yield. Although he said PPIP, and other programmes such as the government's Term Asset-Backed Loan Facility (TALF), were “valid” strategies, he said the programmes were not needed in today's market. “The markets are re-equitising. There's a liquidity bubble forming … The credit markets are healing … they are over-heating,” he said.