Not everyone likes toxic assets

A number of public pensions in the US have lined up to invest in the government's programme to take “toxic” real estaterelated assets off banks' balance sheets. There is, however, one notable absentee from the queue – the California Public Employees' Retirement System.

Recently, the State Universities Retirement System of Illinois committed $120 million to the programme through an Angelo Gordon/GE Capital Real Estate partnership, RLJ Western Management and TCW Group. Meanwhile, Connecticut Retirement Plans committed $100 million to WL Ross IV, an affiliate of Invesco; $50 million to AllianceBernstein; and $50 million to Marathon Asset Management.

The $126 billion New York State Common Retirement Fund has carved out a 5 percent niche in its portfolio for investments including those in the Public-Private Investment Programme (PPIP). The pension, run by state comptroller Thomas DiNapoli, has set aside $200 million for investments in the programme, though it has not yet chosen which managers to invest with.

The programme, intended to reinvigorate the credit markets in the US, is being run by nine fund managers which pre-qualified to join. The managers must raise a minimum of $500 million for the programme.

Seven managers so far have managed to raise $4.09 billion, which has been matched 100 percent by the US government, ramping up the total to $8.18 billion. The US Treasury has also provided $8.18 billion in debt, increasing the available pool of capital to $16.36 billion. Managers still working to reach the $500 million minimum include Oaktree Capital Management, Marathon and the Angelo Gordon/GE Capital partnership.

The programme, established earlier this year, has been growing slower than first anticipated. The scale of PPIP has been cut back from an anticipated spending pool of $1 trillion to about $40 billion.

While some pensions have climbed on board with the programme, CalPERS, the biggest pension in the US at $200 billion, reviewed the programme and decided it wanted no part. A spokesperson said: “We've not had any interest in the programme. While we hope it's successful, at this time we don't see it as the best risk/ return trade-off for us.”