President Barack Obama’s toxic asset plan is getting mostly favorable reviews from one very important constituency: the alternative investments industry.
Hedge funds and private equity firms are expected to be key partners in the government plan to finance the purchase of up to $1 trillion in illiquid assets and loans from banks, which Treasury Secretary Timothy Geithner calls the Public Private Investment Program. And so far, they seem eager, if slightly cautious, about the opportunity.
Peter Schoenfeld, who heads P. Schoenfeld Asset Management, said at the Reuters Private Equity and Hedge Funds Summit that he was happy about the “specificity” of the plan, but worried that “there aren’t too many of these funds that are structured for this.”
“You need skills managing asset-backed securities and that is not typically found at hedge funds.”
Another issue worrying the alts. industry are proposals, stemming from the American International Group bonus scandal, to heavily tax bonuses at firms receiving government bailout money.
Still, the reaction was overwhelmingly positive.
“Even if this does not get all the toxic assets off the banks’ books, it will go a long way,” Pequot Capital Management’s Byron Wien said at the Reuters summit. Wien did say that Pequot itself would probably not participate, citing the minimum bid get some of the assets, and warned, “this is not a thing for long/short hedge funds.”
But Bridgewater Associates, the largest hedge fund in the world, told investors yesterday it might be interested in joining PPIP.
“From a macro perspective, this is a big transfer of money from the government to the banks (who are getting higher prices for their assets) and to the buyers (who are probably going to get a heck of a deal because of the non-recourse loan and the easy access to leverage,” Bridgewater wrote. Still, the Connecticut firm warned it would have to “get over our fears of partnering with the government” to take advantage of the program.
Speaking for the p.e. industry, Dean Nelson of Kohlberg Kravis Roberts said at the summit he sees a “role for private equity coming through this situation we’re in right now as an economy, and we’re very happy and willing to partner with the government where it makes sense.”
Alex Ehrich of UBS’s global prime services unit said “the pricing looks very, very attractive,” while Anthony Scaramucci of hedge fund seeder Skybridge Capital offers bluntly, “There is an opportunity to make money. I like it.”