The New York Times recently reported about the prospects for small investors to cash in on this new-fangled vehicle, but details about its administration and marketing appear sketchy.  Resembling mutual funds, these so-called “bailout funds” would buy mortgage-backed securities from failing banks at fire-sale prices.  So far it’s exclusively been gigantic private investors that have bought toxic assets from weakened financial institutions and, in turn, stand to reap huge profits if real estate values rebound. A number of BE 100s asset managers have reviewed these vehicles to determine whether they prove to be a viable option for Main Street investors. “We think it is a mechanism to provide an investment opportunity at all portfolio levels to share in the government quasi-guarantees,” says Eugene A. Profit, CEO of Silver Spring, Maryland-based Profit Investment Management (No. 14 on the B.E. Asset Managers list with $1.4 billion in assets under management).

The proposed investment funds would be akin to the U.S. war bonds citizens bought to help finance the military effort during World War I.  Bailout funds would give retail investors a chance to profit from helping to resolve the current economic crisis.  Still outraged about huge bonuses paid to executives who work for institutions that received a portion of the $700 billion from the Troubled Asset Relief Program (TARP), some taxpayers may view this investment as an opportunity to achieve significant gains by taking a risky bet on economic recovery.

Reportedly, these funds are still under review and may take several months before they’re established. In an interview with Black Enterprise magazine earlier this week, Rep. Charles Rangel, chairman of the powerful House Ways and Means Committee that has worked closely with Obama administration officials on creating liquidity in capital markets, says he was not fully aware of plans to make such instruments available to small investors.

BE 100s money managers, however, have weighed in on the viability of this new type of investment. Not all asset managers will likely participate in its distribution and management.  For instance, Boston-based Rhumbline Advisers (No. 2 on the B.E. Asset Managers list with $19.1 billion in assets under management) will maintain its ultra-conservative approach. According to its management, the firm does not invest in mortgage-backed securities, “junk” bonds or similar high-risk vehicles.

Jason Tyler, a senior vice president at Chicago-based Ariel Investments L.L.C. (No. 3 on the B.E. Asset Managers list with $13.2 billion in assets under management) asserts that opportunities for small investors has not been the primary focus of the financial recovery plan.  He says the term-asset-backed Loan Facility program (TALF) designed by the Federal Reserve to increase available for entrepreneurs and households is “really not for small investors at all. This is really geared toward institutional investors that have a lot of background in valuing these assets. Retail investors will be able to get to these assets but through mutual funds.”

Profit, on the other hand, views such potential opportunities for small investors as a positive development.  “[We don’t] think this is a bad idea.  Investment companies are already familiar with holding a diversified pool of assets, utilizing professional management and marketing the merits of a particular investment idea.  This is a good idea for small investors for the same reasons mutual funds are a good idea generally for the smaller investor — that is, lower risk through diversification, structured investment programs, extensive disclosures and professionally managed asset portfolios.”

The government’s involvement in the structure of the proposed funds is not clear, Profit says.  “I suspect the mutual fund companies would create, run, and market the funds.  The mutual fund companies would also probably service the shareholder accounts.  These are all functions that mutual fund companies have expertise in.  The question is how much of a partner would the government be in the funds, and whether they would be the initial shareholder at a size that makes the bailout fund idea feasible,” he says.

From Profit’s vantage point, the plan is neither a political gimmick nor a direct economic stimulus measure.  “We have all been negatively impacted by the toxic debt issues, and while it might be prudent to allocate TARP funds to large investment companies and/or pools of capital, they should not be the sole beneficiaries of our tax dollars being utilized in the bailout.  The proposed bailout funds as suggested might be a way to allow everyman or everywoman who is interested or willing to have similar opportunity to invest and benefit in bailout activities as large institutional investors.  We think that the bailout funds proposal is another indication of the Obama administration’s interest in leveling the playing field and providing access in all opportunities.”

Congressional Black Caucus (CBC) members are pushing for minority vendor inclusion as the federal government hands out billions of dollars in stimulus funds. (Source: Getty Images)

Federal Reserve Chairman Ben Bernanke participated in a closed-door meeting yesterday with members of the Congressional Black Caucus (CBC) and more than 300 minority and women entrepreneurs who’d eagerly accepted a last-minute invitation to attend the CBC’s TARP/TALF Access Summit.

The purpose of the event was to examine why these entrepreneurs, many of whom provide asset management, accounting and legal services, have not been allowed to help manage the federal government’s bailout programs, and to explore future contracting opportunities across a broad range of industries as part of the nation’s economic recovery process.

Representatives from the Treasury Department, the Federal Deposit Insurance Corp., and the Federal Housing Finance Agency also addressed the group.

According to Democratic Reps. Maxine Waters and Gregory Meeks, who co-chair the CBC’s Economic Security Taskforce, the summit was just the opening move in what will be an ongoing push to ensure that women- and minority-owned businesses participate fully in federal financial and economic recovery programs. Invitation-only requests for proposals and high asset thresholds that have kept them locked out of the process will no longer be tolerated they say. In addition, they believe that it is both unfair and unwise to rely on the same companies that destroyed the economy to now repair it.

Waters said Bernanke was very receptive to their ideas. He said that not all of the recovery planning and decision-making had been finalized and that he welcomed the opportunity to get input from minority professionals. While Waters found his attitude to be a “refreshing” contrast to the Bush administration’s, she also acknowledged that even with a Democratic administration, the CBC will still have to fight for minority inclusion.

CBC members also indicated that in this matter the group would be using its influence more than ever. “We will be responsible for public policy in ways that have not been seen before. We are 43 members strong and about to exercise some direct and aggressive influence on these financial agencies and our government,” said Waters. “We’re tired of the exclusion historically, tired of being overlooked, and absolutely tired of people not asking for our involvement in ways that will influence how all of this is organized. It simply is a new day.”

“The policies are there but it’s the implementation of that policy that’s the issue,” said Robert Wallace, president and CEO of Bithgroup Technologies. “We stressed to Bernanke that that’s where the weakness is and we need to see some better results in that capacity. He promised to listen, to have an open-door policy and that he’s committed to diversity in the procurement of services and work.  We need work, contracts, and dollars to flow, and he did not promise that.”

Rep. Sheila Jackson Lee also noted that many of the CBC members chair powerful committees and subcommittees whose oversight is intertwined, making it easy for them to oversee and track the government’s progress. “We won’t allow small businesses to be left out,” she said.

The group will look to the Treasury to put in place a process to ensure minority participation, including lowering the $10 billion asset threshold required to participate in the public-private partnership Obama announced last week or allowing smaller companies to form joint venture partnerships that would enable some businesses to reach that threshold. Gary Grippo, deputy assistant secretary for fiscal operations and policy at Treasury, said he would share the group’s ideas with Treasury Secretary Timothy Geithner and Obama.

The CBC plans to put together a more detailed proposal for administration officials that it will prepare with the help of minority trade associations.

“This is not going to be a one-day meeting. We are not going to sit back and allow billions of dollars to be dumped into this economy and watch the same old players be advantaged by it,” Waters said “We’re not going to sit back and watch some of the players who are responsible for the economic mess we’re in today be the recipients of these taxpayer dollars that provide services and make even more money despite the fact they’ve mismanaged their own businesses.”