Since the Obama administration doesn’t seem all that concerned about potential conflicts of interest of having private fund managers advising the government on its $1.25 trillion mortgage-backed securities purchase program while also investing in similar assets on behalf of private clients, the Project on Government Oversight sent a letter to Congress today asking for a little more oversight.
Private asset managers — including Pacific Investment Management Co. (PIMCO), BlackRock, Inc., Goldman Sachs Asset Management, and Wellington Management Company — “are now playing a pivotal role in programs managed by both the Fed and Treasury,” writes POGO.
Although “[i]t’s perfectly understandable that the government is relying on the expertise of these private fund managers to assist with the complex tasks of asset management and valuation … POGO is concerned … about the conflicts of interest that could arise if these fund managers are also investing in the same types of assets for their private clients. These conflicts of interest could have a wide range of consequences, including financial losses for the American taxpayer, an unfair competitive advantage for the fund managers, and the continued erosion of public confidence in the government’s ability to stabilize the financial system.”
POGO notes, for example, that “Bloomberg News recently reported that PIMCO had been advising the federal government on the value of $118 billion in assets—including securities backed by residential and commercial loans—that were guaranteed in the bailout of Bank of America Corp. But PIMCO had also been investing in these same types of mortgage-backed securities for a wide range of private clients. In fact, as of March 31, 2009, PIMCO was carrying around $967 million in its mortgage-backed securities fund.”
Although Bank of America ended up not going through with the deal, as Rep. Scott Garrett (R-N.J.) pointed out to Bloomberg: “Pimco and others potentially have two masters to serve: the U.S. taxpayer and their own fiduciary obligations to clients.”
Government watchdogs want Congress to take make sure the advice private fund managers are giving is truly independent and that U.S. taxpayers don’t get the raw end of the deal.