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Pimco Punts on the PPIP

Posted by Larry Doyle on July 9, 2009 2:27 PM |

Did Bill Gross just flip off Uncle Sam? It would appear that he did. While the U.S. Treasury is touting the official launch of the Public Private Investment Program (PPIP) as a noteworthy event, the most significant aspect is the absence of Mr. Gross and Pimco as one of the managers. As Bloomberg highlights, U.S. Treasury Opens Distressed-Debt Program Without Pimco:

The U.S. plan to help buy as much as $40 billion in assets from banks got started almost four months after it was proposed and without Pacific Investment Management Co., the world’s biggest bond manager and an early supporter.

The Treasury Department picked nine money managers yesterday for the Public-Private Investment Program, or PPIP, including BlackRock Inc. and Invesco Ltd. Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the initiative’s design.

Uncertainties? How about if we return to Mr. Gross’ May 2009 Investment Outlook, in which he cautioned us all about business dealings with Uncle Sam:

If the government indeed becomes your investment partner,  you should keep the big Uncle in clear sight and without back turned.

Over and above Pimco’s absence, the other notable development within the PPIP is the fact that Uncle Sam plans on injecting 75% of the initial equity capital while the private managers inject 25%.  Given that equity split, why wouldn’t the taxpayer receive 75% of the returns? In my opinion, Treasury is injecting more capital simply because a $20 billion or even $30 billion launch would render this initiative as nothing more than PPIP: A Virtual ‘Odd Lot’, as I had written the other day.

. . . ‘without back turned’ . . . ‘odd lot’ . . . two strikes before the game has even begun.

Mr. Gross’ absence speaks volumes!!

LD






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