Investment fund managers operating under the US Treasury Department‘s legacy securities Public-Private Investment Program (PPIP) bought $3.4bn of toxic mortgage assets, collapsed-value collateral that can not otherwise be sold, as of year-end 2009, according to the Treasury’s first quarterly report on the program. The PPIP is divided in two major programs — the securities branch and the loan branch — which together aim to clear mortgage-related securities and other toxic assets from banks’ balance sheets. The program provides federal equity matches for privately raised capital. The securities branch is designed to support price discovery of mortgage-backed securities (MBS) issued before 2009 with original triple-A ratings. Under the program, the Treasury will invest up to $30bn of equity and debt in public-private investment funds (PPIFs) set up with initial capital investments from private-sector fund managers As of December 31st, nine PPIFs raised $6.2bn of private sector equity capital, which the Treasury matched 100% for $12.4bn of total equity capital. The Treasury also provided $12.4bn of debt capital for a total $24.8bn purchasing power among the PPIFs: By the end of Q409, the PPIFs drew down about $4.3bn of that capital to invest in eligible assets, according to the Treasury’s report (download here). The PPIFs now hold about $3.4bn of eligible assets – $2.97bn of non-agency residential (RMBS) and $440m of commercial MBS (CMBS). Within non-agency RMBS holdings, market pricing in the prime sector retains the highest percent of par value (median 73.5%). The subprime sector comes in second, with market prices totaling a median 60.6% of par value. Market prices of Alt-a RMBS come in at a median 60.1% of par value, while option ARM securities have market prices worth a median 54% of par value. The PPIFs have seen cumulative net performance since inception ranging from -1.4% to 3.9%. Global asset management firm Smith Breeden Associates in November indicated investor demand for private-label RMBS was overwhelming the supply, partly due to the purchasing power under PPIP. French investment bank Société Générale’s subsidiary The TCW Group, a global asset-management firm with $108bn of assets under management, said this month it would opt out of PPIP due to management changes. Write to Diana Golobay.

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