Private equity investment funds, in collaboration with the U.S. Treasury, have relieved the market of $10 billion in souring real estate assets, purchased through the federal government's Legacy Securities Public-Private Investment Program (PPIP).[IMAGE]
PPIP was unveiled just over a year ago, under the guise of the original intention of the government's $700 billion bailout package when it was sold to Congress Ã¢â‚¬" to remove so-called toxic mortgages from the system.
The program has been widely criticized for its slow start, though new data from the Treasury shows it's beginning to gain momentum. Still, some market-watchers say the delay means PPIP, at best, will have only a marginal impact, since private-investor appetite for distressed asset[COLUMN_BREAK]
deals is growing and the previously gridlocked secondary mortgage market is starting to show signs of movement.
The Treasury published its ""second quarterly summary of PPIP"":http://financialstability.gov/docs/External%20Report%20-%2003-10%20Final.pdf activity Tuesday, which showed that the PPIP fund managers' holdings nearly tripled compared to the previous three months. As of March 31, 2010, the eight funds participating in the program had acquired just over $10 billion in eligible assets, compared to $3.4 billion at the end of 2009.
About 88 percent of the PPIP portfolio holdings, or $8.8 billion, are non-agency residential mortgage-backed securities (RMBS). Twelve percent, or $1.2 billion, are commercial mortgage-backed securities (CMBS). Of the RMBS assets, nearly half fall into the Alt-A loan category.
By the Treasury's calculations, the PPIP investment funds have $25.1 billion of total purchasing power, which includes $6.3 billion in private capital. The Treasury has matched the private equity contribution dollar-for-dollar, and also provided $12.5 billion in debt capital.
The Treasury cautioned that because the funds are in the very early stages of their three-year investment periods, itÃ¢â‚¬â„¢s premature to draw any meaningful conclusions about individual performance, but the report did include some preliminary stats on each fundÃ¢â‚¬â„¢s returns so far.
The fund managed by Angelo, Gordon & Co. and GE Capital Real Estate is registering the highest rate of return at 20.6 percent.