Alts. Firms Join U.S. Toxic Asset Program

Jul 13 2009 | 11:01am ET

A quintet of alternative investment industry players have been chosen to participate in the federal government’s toxic asset program.

Investment giant BlackRock and hedge fund Marathon Asset Management will take part in the U.S. Treasury Dept.’s Public-Private Investment Program, which aims to take some $40 billion in distressed assets off of banks’ books. Also selected were Invesco, the parent of private equity shop WL Ross & Co., and RLJ Western Asset Management, a joint-venture of the RLJ Companies—which has a hedge fund and a p.e. subsidiary—and Legg Mason’s Western Asset Management, which offers absolute return and portable alpha programs. AllianceBernstein will also participate.

Most major asset managers have balked at joining PPIP, and Marathon’s Andrew Rabinowitz says it is unclear how much interest there will be among investors.

“There is a tremendous amount of demand to talk about the program,” the firm’s chief operating officer told Bloomberg News. “Whether that means there’ll be a tremendous demand for investing in it, I honestly don’t know yet.”

He’ll have a year to figure it out: Marathon, the smallest of the firms picked for PPIP with $9.5 billion in assets, has 12 months to raise at least $500 million, including $20 million of its own money. But the firm has even bigger plans, hoping to raise $1.1 billion to win the maximum amount in matching funds that Treasury is offering. It could also make use of the federal loan portion of PPIP to lever the fund to $4.4 billion.

Also seeking $1.1 billion is RLJ Western, according to Bloomberg. Only one firm, BlackRock, the largest investment manager in the world, plans to raise more than that, despite the fact that the feds won’t match anything above $1.1 billion. BlackRock said it hopes to garner $3.5 billion.

Rabinowitz told Bloomberg that the Treasury has put few strictures on how PPIP participants invest their money, other than insisting upon diversification.

“The government has given us complete flexibility in what assets to buy,” he said.

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