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Mavdog · 01-07-2009, 10:40 AM

interesting.
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Uncle Sam’s 16% Return: How Treasury’s Bank Investments Are Making Money
Posted by Heidi N. Moore

Treasury Secretary Hank Paulson is getting a better return than most fund managers this year.

New Hampshire Republican Senator Judd Gregg estimated in a Wall Street Journal op-ed yesterday that the Treasury’s Troubled Asset Relief Program has had a gain of about $8 billion so far in the past three months. “The TARP, for all its warts, has involved using tax dollars to invest in assets that will have a return to the taxpayer,” noted Gregg. “In fact, the estimate to-date is that the TARP has actually had a gain of about $8 billion, while recapitalizing the financial system. With this type of stimulus, there will be little, if any, long-term increase in the debt.”

TARP has taken a lot of heat for being a somewhat cobbled-together effort, but if it keeps going along the same lines, it will put to shame many professional U.S. private equity funds with decades in the business.

Consider: With an $8 billion gain on the $200 billion investment Treasury has made so far in U.S. banks and companies until Dec. 30, that adds up to about a 4% return — or better than most hedge funds, mutual fund managers and private equity firms can claim this year as they have suffered in the red.

If you annualize TARP’s return on the assumption that it will continue to succeed, it would add up to a roughly 16% return on that initial $200 billion investment per year. Of course, Treasury Treasury started making these investments fairly close to what many believe is the market bottom, while other investors had acquired assets at much higher prices through the crisis and beforehand.

That is healthier than the returns for many private equity firms. Nearly 57% of limited partners in private equity funds expect returns of less than 16% to their private equity portfolios — and that is over the next three to five years, according to Coller Capital, since many private equity funds are in negative territory for the short-term.

TARP is also doing far better than the average hedge fund, which posted an 18% loss in the year to November, according to Barron’s. As of Nov. 30, the Hedge Fund Research Fund of Funds Composite Index — which measures hedge fund performance — was down 19.40%.

In addition, hedge funds are suffering record redemptions as $43.5 billion of money left the industry in 2008 up to Oct. 31, according to Hedge Fund Research. That compares to a net inflow of $194.4 billion in 2007.

That is a marked difference from TARP, where money just keeps flowing in and in.

Fund managers and the Treasury both have a lot of money to deploy. Treasury has yet to call on the remaining $350 billion of TARP funds from Congress. The 10 largest private equity funds are sitting on nearly $200 billion of unused funds, according to data provider Prequin, with Goldman Sachs alone holding $31.15 billion and Bain Capital $21.1 billion. Other flush investors also have plenty of cash: Warren Buffett’s Berkshire Hathaway has a cash pile of $106.1 billion, according to data from Bloomberg.

If the keeps going the way it is, Secretary Hank Paulson will have leave a profitable legacy. More importantly, the government –which has already saved the banking industry and the auto industry — will prove itself to be the new “smart money” in the system.

01-07-2009, 10:40 AM	#56
Mavdog Diamond Member Join Date: Jan 2002 Location: Texas Posts: 6,014	interesting. ---------------------------------------------- Uncle Sam’s 16% Return: How Treasury’s Bank Investments Are Making Money Posted by Heidi N. Moore Treasury Secretary Hank Paulson is getting a better return than most fund managers this year. New Hampshire Republican Senator Judd Gregg estimated in a Wall Street Journal op-ed yesterday that the Treasury’s Troubled Asset Relief Program has had a gain of about $8 billion so far in the past three months. “The TARP, for all its warts, has involved using tax dollars to invest in assets that will have a return to the taxpayer,” noted Gregg. “In fact, the estimate to-date is that the TARP has actually had a gain of about $8 billion, while recapitalizing the financial system. With this type of stimulus, there will be little, if any, long-term increase in the debt.” TARP has taken a lot of heat for being a somewhat cobbled-together effort, but if it keeps going along the same lines, it will put to shame many professional U.S. private equity funds with decades in the business. Consider: With an $8 billion gain on the $200 billion investment Treasury has made so far in U.S. banks and companies until Dec. 30, that adds up to about a 4% return — or better than most hedge funds, mutual fund managers and private equity firms can claim this year as they have suffered in the red. If you annualize TARP’s return on the assumption that it will continue to succeed, it would add up to a roughly 16% return on that initial $200 billion investment per year. Of course, Treasury Treasury started making these investments fairly close to what many believe is the market bottom, while other investors had acquired assets at much higher prices through the crisis and beforehand. That is healthier than the returns for many private equity firms. Nearly 57% of limited partners in private equity funds expect returns of less than 16% to their private equity portfolios — and that is over the next three to five years, according to Coller Capital, since many private equity funds are in negative territory for the short-term. TARP is also doing far better than the average hedge fund, which posted an 18% loss in the year to November, according to Barron’s. As of Nov. 30, the Hedge Fund Research Fund of Funds Composite Index — which measures hedge fund performance — was down 19.40%. In addition, hedge funds are suffering record redemptions as $43.5 billion of money left the industry in 2008 up to Oct. 31, according to Hedge Fund Research. That compares to a net inflow of $194.4 billion in 2007. That is a marked difference from TARP, where money just keeps flowing in and in. Fund managers and the Treasury both have a lot of money to deploy. Treasury has yet to call on the remaining $350 billion of TARP funds from Congress. The 10 largest private equity funds are sitting on nearly $200 billion of unused funds, according to data provider Prequin, with Goldman Sachs alone holding $31.15 billion and Bain Capital $21.1 billion. Other flush investors also have plenty of cash: Warren Buffett’s Berkshire Hathaway has a cash pile of $106.1 billion, according to data from Bloomberg. If the keeps going the way it is, Secretary Hank Paulson will have leave a profitable legacy. More importantly, the government –which has already saved the banking industry and the auto industry — will prove itself to be the new “smart money” in the system.