Two firms complete initial fundraising for Treasury toxic-asset plan

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The Treasury Department’s long-awaited attempt to deal with toxic mortgage-backed securities cleared another hurdle today as two of the nine fund managers selected to lead public-private partnerships to purchase the assets have raised at least $500 million each, the department said.

Invesco Ltd. and Los Angeles-based TCW Group Inc. have completed their initial fundraising from private investors, bringing in a total of $1.13 billion in capital commitments as part of the Public-Private Investment Program. The money has been matched by the Treasury, which also will provide debt financing that will give the two funds a combined purchasing power of $4.52 billion.

Those funds now have 10 days to call in some of the capital and then can start purchasing assets.

“This program allows Treasury to partner with leading investment management firms to increase the flow of private capital into the market for legacy securities and give taxpayers a chance to share in the profits,” said Treasury Secretary Timothy F. Geithner, who added that he was pleased with the progress of the so-called PPIP.

Securities backed by soured mortgages and other bad investments were at the heart of the financial crisis, and Congress created the $700-billion Toxic Asset Relief Program last fall to buy them from
financial institutions. But the Bush administration decided to use some of the money to purchase equity stakes directly in banks, and the original plan to purchase the assets was deemed too complicated to go forward.

The Obama administration has tried to relaunch a scaled-back program, designed to use TARP money to lure private investors into buying the assets in partnership with the government. In July, the Treasury Department announced a significantly downsized program, with the goal of getting private fund managers to raise up to $10 billion, which would be combined with up to $30 billion in government money to buy the assets.

The Treasury Department named nine fund managers in July, who then went to the markets to raise money from private investors. The department said it expected the seven other fund managers, including BlackRock Inc. and Wellington Management Co., to raise the minimum $500 million by the end of the month.

Once they reach the $500-million minimum, the fund managers have six months to raise additional money, up to $1.1 billion each.

-- Jim Puzzanghera