Big funds seen winning US bailout job

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Big funds seen winning US bailout job

Large US asset managers with strong fixed-income records, such as BlackRock Inc, PIMCO and Trust Company of the West, are seen as favored to oversee the US government's $700 billion financial rescue fund.

For these and other firms in the race, the main attraction would be a chance to make reputational, rather than financial, gains as the fees for managing the assets are expected to be low.

"In order to manage fixed-income products very well, you generally need scale. That's why in the fixed-income space it's very difficult to break in, because you need the size," said Roger Smith, an analyst at Fox-Pitt, Kelton.

In an attempt to clean up the worst financial disaster since the Great Depression, the US Congress has legislated a move to let the government buy illiquid mortgage assets from banks and other financial institutions.

To handle these purchases, the Treasury is hiring money managers as well as appointing an adviser to oversee the overall program. On Monday, the Treasury named Neel Kashkari, assistant secretary for international economics and development, as head of the program.

The Treasury said last week it planned to recruit about two dozen fresh staff to help run the program and between five and 10 asset managers to look after its investments.

It outlined on Monday the principles that it hopes will mitigate the conflict of interest of outside contractors performing services in conjunction with the program.

Companies wishing to do work for the Treasury will have to present a report on possible conflicts of interest and how they will mitigate those conflicts.

BlackRock, the biggest publicly traded money manager in the United States, has both scale and strong pedigree. Its chairman and chief executive officer, Laurence Fink, is already known as Wall Street's 'Mr Fix-It' after being selected by the Federal Reserve to help manage Bear Stearns' portfolio as it was being bought by JP Morgan Chase.

Fink was also one of the first people on Wall Street to package mortgage obligations and popularize the new product. BlackRock, which manages roughly $1.4 trillion, largely avoided the toxic debt but has raised new funds to capitalize in distressed markets.

BlackRock's biggest shareholder is Merrill Lynch, which had loaded up on the bad debt and agreed to be taken over by Bank of America.