I was shocked. A CEO of a major financial company in Atlanta using words like “thoughtful,” “superb” and “ingenious” to describe a federal government program to dispose of toxic assets.
But that’s exactly what Marty Flanagan said when I asked why his Invesco money-management firm decided to help the government clean up the financial mess.
Aren’t there better ways to make money? Isn’t a mattress safer?
After all, many financial execs have been running as far away as they can from what they consider to be toxic government programs.
But Flanagan is bullish on the deal that his company and eight others nationally made with Uncle Sam recently.
Known as the Public Private Investment Program, Invesco will raise and invest as much as $1.1 billion — with the government matching the amount — to buy troubled assets, primarily mortgage-backed securities.
“The toxic assets have declined in value so much that we are looking … to make money for our clients over a multi-year time horizon,” Flanagan, 49, said. The assets are generally trading at a discount of between 20 percent and 40 percent, he said.
Invesco and the eight other firms were selected from among 125 that applied. Flanagan, a veteran of 26 years in the investment business, said he was impressed by the program’s thoughtfulness.
You might remember that for months, at the height of the financial meltdown last fall, many experts wanted the federal government to revive what it did during the S&L crisis two decades ago. Essentially, the government quarantined the bad assets in a separate federally owned company, Resolution Trust Corp., which sold them off later.
“This problem was too big to do the S&L [model],” Flanagan said.
No one really knows how big, but numbers in the trillions of dollars have been thrown around. And no one really had a good idea for the best way to value the toxic assets, although an auction was mentioned as one plausible method.
Instead, Flanagan said, what the U.S. Treasury came up with makes more sense. The taxpayer, he said, is not on the hook for the whole program. It starts out small, with the nine firms attempting to raise a total of $10 billion from institutional and sophisticated investors. The government will match the amounts raised. Then, if things work out, the plan can be expanded later.
Flanagan said government rules prevent him from discussing how investor reaction has been going so far.
Invesco and the other companies will earn a fee based on the value of the assets they manage. The Atlanta firm also will invest $20 million of its own money.
Flanagan pointed to another advantage of the program — trained money managers at the nine private firms are likely to be better at evaluating the toxic assets than the federal government would be.
Already, he said, the mere existence of the program has reduced the financial mess because the values of some of the toxic assets have been rising.
“Just by creating potential demand [for the toxic assets],” Flanagan said, “the program has helped the problem. … It seems fashionable to give [the government] a hard time these days. But they were on the ball. … They did a helluva job.”
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