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Sunday, March 29, 2009

Bridgewater's view on Toxic Asset Plan

Source: Reuters

Hedge fund Bridgewater mulls U.S toxic asset plan


NEW YORK (Reuters) - Bridgewater Associates Inc, one of the world's biggest hedge-fund managers, said on Tuesday it might be interested in participating in the U.S. Treasury's public-private investment program, calling it a "big transfer of money from the government to the banks and to the buyers."

Bridgewater manages roughly $80 billion in global investments for a wide array of institutional clients, including foreign governments and central banks.

In a letter to clients, Bridgewater said its interest in buying the distressed assets under the terms being offered would depend on the pricing and on "whether we can get over our fears of partnering with the government."

Last week's political furor surrounding the American International Group Inc bonus payments raised the risks for private capital firms thinking about partnering with the Treasury. Many have expressed reservations regarding retroactive curbs on compensation and profits.

But investors' concerns were muted after Federal Reserve Chairman's Ben Bernanke's statement to a congressional hearing on Tuesday in which he said: "I do think we have to provide assurances to participants" in the Term Asset-Backed Securities Loan Facility and the Public-Private Investment Fund, for example, "that their involvement will not be retroactively penalized in some way."

Ray Dalio, the founder of Bridgewater, is considered one of the world's most successful investors. Bridgewater's Pure Alpha fund returned 8.68 percent last year, according to Absolute Return magazine, while many hedge funds posted double-digit losses for the same period.

In August 2007 when markets were in near free-fall, Bernanke held discussions with financial experts, including Dalio.

In the letter, Bridgewater said: "From a macro perspective, this is a big transfer of money from the government to the banks (who are getting the higher prices for their assets) and to the buyers (who are probably going to get a heck of a deal because of the non-recourse loan and the easy access to leverage).

"If the government was operating in an economic way, it would not do this deal -- it would deal with the banks' finances separately and sell this insurance (i.e. the implied put arising from the non-recourse loan) for what it's worth," Bridgewater said in the letter.

"But, politics being what they are, this route is probably motivating this non-economic behavior. We are eager to see how it is received on the Hill," it said.