Exclusive: PIMCO to participate in U.S. toxic asset plan

NEW YORK Mon Mar 23, 2009 6:46pm EDT

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NEW YORK (Reuters) - Bill Gross, the influential manager of the world's largest bond fund, gave the Obama administration's financial stability effort a much-needed endorsement on Monday, saying PIMCO will participate in the public-private plan.

"This is perhaps the first win-win-win policy to be put on the table and it should be welcomed enthusiastically," the founder and co-chief investment officer of PIMCO told Reuters.

Gross' Pacific Investment Management Co oversees roughly $800 billion. He manages PIMCO's flagship Total Return fund, which currently has $139 billion in assets.

"We intend to participate and do our part to serve clients as well as promote economic recovery," he said, adding PIMCO will both buy toxic assets and manage some of them.

Another influential money manager, BlackRock Inc, told Reuters on Sunday that it too intends to be involved as one of the investment managers in the public-private investment fund. A Kohlberg Kravis Roberts & Co executive said on Monday the private equity firm would be "happy and willing" to partner with the government if an investment deal to buy assets made sense.

The U.S. Treasury Department on Monday rolled out detailed plans for persuading private investors to help rid banks of up to $1 trillion in toxic assets that are seen as a roadblock to economic recovery.

Generous government financing will underpin the Public-Private Investment Program, which the Treasury will launch with $75 billion to $100 billion from its $700 billion bailout fund approved by Congress last fall.

"From PIMCO's perspective, we are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer," Gross said.

Gross's endorsement is important after the lack of big investor interest in the debut of the Federal Reserve's consumer lending program last week.

The Fed's Term Asset-Backed Securities Loan Facility, or TALF, received only $4.7 billion in requests for loans out of $200 billion on offer, heightening fears that big money managers will also shun the government's toxic-asset plan.

TSUNAMI OF DISTRUST AFTER AIG

Gross' vote of confidence also comes after last week's political furor surrounding the American International Group Inc bonus payment debacle and the anti-Wall Street mood, which raised the risks for private capital firms thinking about partnering with the Treasury.

Congress is moving to clamp down on companies receiving financial bailout money by severely taxing bonus payments.

There is concern that any financial firm getting involved in the toxic asset plan could face retroactive limits on compensation or profits.

"There's a sense of having gone too far and that there's fear that anyone that participates in this or any other government program would be subject to increased scrutiny and standards that didn't exist in the past ... I couldn't discourage that thinking," Gross told Reuters Financial Television.

"I would point to Secretary (Timothy) Geithner's guarantee and promise as well as that from (Federal Reserve Chairman) Ben Bernanke that basically they want to maintain and ultimately produce a thriving private sector and the limitations that may be placed on AIG connections, I guess, won't exist in this particular program. So PIMCO has no fear of that, so to speak."

He said the Treasury's public-private partnership plan has "an objective of liquefying relatively frozen portions of the credit market and promoting the extension of new loans in the U.S. economy."

Gross added: "To succeed, it will require participation from both willing buyers as well as sellers, in addition to the substantial government assistance being provided in the proposed policy package."

(Additional reporting by Daniel Burns, Chris Sanders and Megan Davies; Editing by Dan Grebler)

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