Plus, Putnam's nixed merger, Mutual Series turns 60, and another shop cuts B shares.
By Katie Rushkewicz Reichart, CFA | 07-09-09 | 02:15 PM | Email Article

The U.S. Treasury Department has announced the nine firms that will take part in the Public-Private Investment Program, which aims to remove toxic assets from banks' balance sheets. After a two-month selection process, the Treasury said that the following firms will get a piece of PPIP:  AllianceBernstein ; Angelo, Gordon & Co. LP (a partner with GE Capital Real Estate);  BlackRock ;  Invesco ; Marathon Asset Management; Oaktree Capital Management; RLJ Western Asset Management; TCW Group; and Wellington Management Co. Each firm must raise at least $500 million in private capital within the next three months to be eligible to match Treasury funds of as much as $10 billion and another $20 billion in debt financing. The money will be used to purchase legacy commercial and residential mortgage-backed securities that played a role in the financial crisis.

Katie Rushkewicz Reichart, CFA, is a director of equity strategies for Morningstar.

One notable firm missing from the lineup is PIMCO, an early proponent of the program. The Wall Street Journal reported that the bond giant withdrew its nomination in early June because of "uncertainties" about how the program would work. PIMCO hasn't elaborated on its decision to withdraw. The Los Angeles Times speculates that the firm was concerned that it couldn't raise the required $500 million from private investors after it had problems venturing into troubled mortgage securities in 2007, although this seems unlikely for such a prominent firm.

It's more likely that PIMCO was disappointed with how the program evolved. The Treasury projected in March that PPIP would hit nearly $500 billion, but the program has been dramatically scaled back and is now expected to total around $40 billion. Having nine management firms in the mix--perhaps more than originally anticipated--and a smaller asset base could mean that PIMCO would end up with a lower stake than it expected, making it not worth the hassle.

Putnam's Snafu
Putnam is taking heat from an activist shareholder over a cancelled fund merger. Putnam announced in September 2008 that it planned to merge closed-end funds Putnam Municipal Opportunities  and Putnam Managed Municipal Income  but pulled the plug in June 2009, citing changing market conditions. That didn't sit well with Karpus Management, which owns 10.38% and 2.99% of the two funds, respectively. Karpus portfolio manager Brett Gardner filed a letter with the SEC on July 2, 2009, stating that the merger would have been in the best interest of shareholders and expressing disappointment that it wasn't put up for a vote. He also maintains that Putnam misled investors and manipulated share prices of the two funds. "We question whether the Trustees ever really considered submitting the proposed mergers to shareholders via the Funds' proxy statements," Karpus said in its letter. "Further, we feel that the Trustees' actions and 'recommendations' appear to be more driven by the Putnam Funds rather than the shareholders who they purportedly have a fiduciary duty to represent."

Mutual Series Turns 60
Franklin Templeton's Mutual Series hit its 60th anniversary on July 1. Its flagship fund,  Mutual Shares , has returned more than 12% annually since its inception in 1949. The renowned fund shop's disciplined approach and strong investment culture have made it a powerhouse in value investing. It's also become known for shareholder activism under investors such as former CEO Michael Price. Even after Franklin acquired Mutual Series in 1996, it has remained autonomous and has preserved its unusual investing approach.

Praxis Cuts B Shares
Socially conscious fund family MMA Praxis will stop selling B shares to new investors on July 14, and all existing B shares will convert to A shares on Aug. 14. The affected funds include MMA Praxis Intermediate Income ,  MMA Praxis Core Stock , MMA Praxis International , MMA Praxis Value Index , MMA Praxis Small Cap , and MMA Praxis Growth Index . MMA Praxis is the latest in a string of fund shops that have stopped offering B shares in recent years, including American Funds, Dreyfus, Franklin Templeton, and Evergreen Investments, which is now part of Wells Fargo.

Allianz News
All share classes of the $5.1 billion  Allianz NFJ Small Cap Value  will close to both new and existing shareholders on Aug. 31, 2009. Participants in specified-benefit plans like 401(k) and 403(b) plans won't be affected. The fund has been closed to new investors since April 2009.

Meanwhile, Allianz RCM Small-Cap Growth , which launched in 2006 and gathered just $3 million in assets, will liquidate July 14, 2009.

Turner Investment Partners will no longer serve as subadvisor to Old Mutual Large Cap Growth , effective Aug. 22, 2009. Ashfield Capital Partners, LLC will stay on as sole subadvisor. Turner was also removed from  Vanguard Growth Equity  back in January.

As of July 1, the UMB Scout Funds became the Scout Funds.

Securities mentioned in this article



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Katie Rushkewicz Reichart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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