Meet the man who manages $376 billion and is enjoying exit events just 15 months after the formation of his fund.
Tim Geithner, general partner (if you will) of the Troubled Asset Relief Program, as well as US Treasury Secretary, can be thought of as the biggest fund manager in the world. Unlike most big fund managers, he makes $191,300 per year and receives no bonus or performance fees.
With the recent news that US bank PNC will repay its TARP loan, Geithner’s office released a statement that nearly 70 percent of capital injected specifically into the banking system had been repaid. Wow – no J-Curve for Timothy.
The PNC repayment has brought the estimated profits earned by the Treasury to date up to $16 billion, although “profit could be considerably higher as Treasury sells additional warrants in the weeks ahead”, the statement read.
Geithner and his team have highly motivated buyers for their portfolio investments, those being the portfolio companies themselves.
An earlier statement estimated that US taxpayers have earned an average return of 14 percent through TARP – not bad in this low-interest rate environment. Of the $376 billion total that has been deployed through TARP, $203 billion remains outstanding.
Assuming performance keeps up, a 14 percent return on $376 billion is $53 billion. However, the success of the Capital Purchase Program – a subset of TARP targeting banks – will not necessarily be duplicated in other areas of TARP.
As a fund manager, the US Treasury has it all – end-investors (taxpayers) who can’t say no, proprietary deal flow, historic market dislocation, motivated sellers, the ability to dictate terms. And now, thanks to odious TARP requirements, Geithner and team have highly motivated buyers for their portfolio investments, those being the portfolio companies themselves.
The biggest fund manager in the world will receive no carried interest or bonus for his success. And while most private equity fund managers are used to hearing concerns about their strategies, the griping is never as public as it has been for Geithner, who has had to sit through withering congressional inquiries into the effects and motivations of TARP.
And now, how about some distributions? If TARP does indeed generate $53 billion in profits, that spells $177 for every American. But I personally wouldn’t bat an eyelash if Treasury took 20 percent in carried interest to sock away for the next time this kind of distressed deal flow comes its way.