Treasury Releases Another PPIP Report Card

WASHINGTON, DC-The Treasury Department has released its eighth quarterly report on the Legacy Securities Public-Private Investment Program--aka the PPIP program. Much of the report consists of financial details--asset classes in which the PPIPs have invested, for instance--illustrating where the program is at the moment.

However, the picture it paints as a whole is not encouraging, Linus Wilson, a professor of finance at the University of Louisiana at Lafayette, tells GlobeSt.com. “Taxpayers' blended returns on their $17.2 billion PPIP investment are about 5.6%,” he says, which is not that significant, given their low cost of borrowing.

Treasury reports that the PPIFs, having completed their fundraising, have closed on approximately $7.4 billion of private sector equity capital commitments, which, as the program mandates, has been fully matched by Treasury for a total of $14.7 billion in equity capital commitments. Treasury has also provided $14.7 billion of debt capital commitments, representing $29.4 billion of total purchasing power.

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The report also notes that the PPIFs have drawn-down approximately $23.1 billion of the total capital committed, or 78.5% of total purchasing power, which has been invested in eligible assets and cash equivalents pending investment. In addition, it reports that Treasury has received approximately $887 million in net cumulative equity distributions, approximately $179 million in cumulative interest payments and approximately $940 million in cumulative debt principal payments from the PPIFs.

The way Wilson translates the numbers, however, suggests a slow growth in ROI for these funds. Based on his calculations, they have posted about 2.3% per year over the two years of the program. 

“This calculation assumes that the debt is held at par and there will be no losses to the bonds--meaning, I believe, that this calculation is optimistic,” Wilson says. Compared to other assets classes, the PPIPs have woefully underperformed, he adds. Mortgage hedge funds returned 22.4% in 2010 and 10.4% through July, he notes, citing HedgeFund.net as a source. In addition, “the taxpayer-sponsored PPIP funds have access to taxpayer subsidized nonrecourse debt, which most hedge funds can only dream about. Yet, the taxpayer-sponsored funds' returns over this period have lagged the market, returning 12.8% since inception.”