BlackRock's Arledge: Treasury Program `Is Going To Work'
March 23 2009 - 3:51PM
Dow Jones News
A senior fund manager from BlackRock Inc. (BLK) praised the
latest details of the government's bank rescue program Monday and
said the plan will help stabilize credit markets and offer
investment opportunities.
Curtis Arledge, co-head of U.S. Fixed Income in BlackRock's
Fixed Income Portfolio Management Group, said the company plans to
apply as an investment manager with the Treasury's public-private
investment program, which is aimed at helping banks remove toxic
assets from their balance sheets. BlackRock rival Pacific
Investment Management Co. has also said it plans to apply for an
investment management slot.
If approved, BlackRock will go out and raise money from its
large pool of clients, both institutional and retail, he said,
adding that BlackRock is thinking about creating a mutual fund for
retail investors and high net-worth individuals.
BlackRock will use the money raised to buy toxic assets and the
Treasury Department will put in capital on an equity basis and also
provide financing for the mutual fund, he said. He said BlackRock
has recently raised over $3 million in a closed-end mutual fund to
help funnel retail money into similar assets.
BlackRock will also tap into funding from the government's Term
Asset-Backed Securities Loan Facility, or TALF, using it to buy
assets, he said.
"We both hope to be hired as fund manager and we hope to use the
funding program to improve returns for our clients," Arledge said
in a telephone interview from his New York office.
BlackRock is the largest publicly-traded U.S. money manager with
over $1.3 trillion worth of assets under management at the end of
last year.
The Treasury's new plan will use up to $100 billion in funds
from the Troubled Asset Relief Program, or TARP, and capital from
private investors to generate $500 billion, which will be used to
buy existing troubled assets, such as securities backed by
commercial real estate or home loans, that are clogging up credit
markets and bank balance sheets. The program potentially could
expand to $1 trillion over time. Treasury said the program is a
necessary step in healing the financial system and helping the
economy recover.
"I think it is going to work and it is going to be a very good
program," said Arledge.
Arledge noted that, for the most part many of these assets have
seen their prices consistently decline because there wasn't enough
capital on the buyers' side to offset the wave of selling.
The Treasury program will help encourage private investors to
buy these assets, which have cheapened significantly, and such
demand will help improve liquidity value.
"There will be large amount of capital that is going to come in
to buy these assets which will change the equation," he said.
"Giving investors capital to buy these assets is going to improve
their pricing," he said.
With its solid funding base and support from the government, the
Treasury plan will spur interest from a lot of investors who have
waited for the opportunity to put money back to work, but have
stayed on the sidelines amid fear of further price declines, he
said.
While the government's program may create demand and prevent
further declines in these distressed assets, Arledge noted that
credit markets have yet to return to normal. The economy is still
weak, and there are still credit concerns around many assets, he
said.
There is also concern about the pricing of loans that banks may
want to sell. Investors may bid at levels that are below the price
at which the banks would want to sell the loans, he cautioned. But
he is optimistic that a process will be put in place that will
allow the intrinsic value of such distressed assets to emerge.
Another worry is the political climate, amid the ongoing public
anger about bonus payments at American International Group (AIG)
and banks that have received public funds. The House passed a bill
last week that will raise a hefty tax on bonuses paid out by
companies that receive government bailout funding. There are also
increasing calls for tighter and broader oversight over not just
bank holding firms but hedge funds and other financial
institutions.
Market participants are concerned that such attacks may
discourage private sector participation in the Treasury program,
stymying its goal of getting credit flowing again.
Arledge said he has heard investment managers express such
concerns. But he said policy makers understand that if they want
private capital to move back into these markets, managers investing
through these programs should not be subject to compensation
limitations.
"In the big picture, the government is trying to restore
economic growth," he said. "More capital is needed than the
government can supply. We trust them. We also think they are very
intelligent about how they think about this issue."
-By Min Zeng, Dow Jones Newswires; 201-938-2096;
min.zeng@dowjones.com