WASHINGTON — The Treasury Department is making it easier for hedge funds and other private investors to participate in its plan for buying up banks’ bad assets, an acknowledgment of lackluster interest so far.
Analysts said it seems the program hasn’t attracted enough large fund managers, who may be wary of ending up on the wrong side of a congressional probe or public backlash. Also, the program’s requirements excluded too many smaller managers, they said.
The government is relying on private investors to purchase poorly performing real-estate investments weighing on bank balance sheets.
The Treasury relaxed a requirement Monday that companies already manage at least $10 billion of the mortgage-backed securities to participate. A Treasury official said only a few firms qualified under that criterion. The department also emphasized that the program is open to small, woman- owned and minority-owned firms and said it will encourage such firms to partner with private asset managers.
“Clearly, they weren’t getting the participation they needed,” said Bernie McGinn, chief executive of McGinn Investment Management, a money manager based in Alexandria, Va.
Some fund managers are concerned about teaming up with the government after the firestorm over bonuses paid to executives at American International Group, which has received $182.5 billion in bailout funds.
The House held hearings on the issue and approved legislation taxing the bonuses at 90 percent, though the measure hasn’t become law.
“Investors are leery about getting involved with any government program, because they don’t want to be very visible,” said Steven Persky of Dalton Investments, a hedge fund specializing in distressed debt. “You don’t want to be on the wrong side of a congressional investigation.”
Douglas Elliott, a Brookings Institution fellow, said some smaller distressed debt funds would likely seek to buy the securities but don’t meet the $10 billion requirement.
The new guidance follows details of the public-private investment partnership Treasury Secretary Timothy Geith ner unveiled last month. The program will use government money and Federal Reserve loans to finance private investors’ purchases of commercial and residential mortgage-backed securities from banks. A second part will finance purchases of loans.
Geithner has said the initiative will use between $75 billion and $100 billion from the bank-rescue fund.
