But if the plan goes well, including everyday Americans as buyers of the assets may encourage them to support the government’s program and avoid another American International Group-style firestorm. If investors lose money, however, the effort could backfire.
“If this turns out to be great but you have kept it away from Mom and Pop and the rich are favored, that looks bad, but it’s also bad if you have people who are burned,” said Jay D. Grushkin, a partner at the law firm of Milbank, Tweed, Hadley & McCloy.
Some of the biggest investment managers in the United States, including BlackRock and Pimco, have been consulting with the government on ways to rebuild the country’s broken financial markets.
On the day the plan was announced by Treasury Secretary Timothy F. Geithner, both Bill Gross, the co-chief investment officer of Pimco, described it as a “win-win-win policy,” and
Laurence D. Fink, BlackRock’s chairman and chief executive, said his firm would take part.
The fund industry has been in discussion with the government but insists the Treasury has not been prescriptive about the type of funds it wants established. In its letters to potential investors, however, the Treasury requires fund managers to set out how they will include retail investors, saying applicants “must note whether, and if so how, it plans to structure the fund to facilitate the participation of retail investors in the fund.”
Individuals could participate in the funds by investing just a few hundred dollars, although the details are still being worked out.
If selected—likely to happen by mid-May—money managers like BlackRock could begin a fund within weeks.
As well as BlackRock and Pimco, Legg Mason, another big mutual fund company, and BNY Mellon Asset Management, a big asset manager, have said they are interested in starting retail investment funds to participate in the government’s plan.
For the investment managers, the benefits are potentially large. These big firms can charge healthy fees to investors for taking part. They will also have the marketing prestige of being the firms the government turns to at a time of crisis to help sort out the country’s financial mess.