Yesterday, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released a report entitled “Selecting Fund Managers for the Legacy Securities Public-Private Investment Program” (PPIP). SIGTARP conducted the study of fund managers at the request of the Chair and Ranking Member of the Subcommittee on Contracting Oversight of theSenate Committee on Homeland Security and Governmental Affairs, and the study is meant to complement another planned SIGTARP study that will look at PPIP managers’ compliance programs.

In this report, SIGTARP found that Treasury had taken reasonable steps to identify firms to manage public-private investment funds (PPIFs) under PPIP, including hiring a law firm to help design the application and selection process. SIGTARP also found that Treasury had appropriately documented the selection process. Moreover, SIGTARP agreed with Treasury in its determination that it was not required to use the Federal Acquisition Regulation when selecting the fund managers for the PPIFs.

SIGTARP did note, however, that Treasury relied on advice from three large investment firms in designing the PPIP, and possibly as a result, Treasury’s selection criteria for PPIF managers tended to favor large investment firms over smaller fund managers which may have been equally qualified. SIGTARP also noted that, although Treasury encouraged applicants to form partnerships with small, veteran-, minority-, and woman-owned asset managers, it provided no guidance on the expected role of such partners.

Included with the SIGTARP report was a response from Treasury, in which Timothy Massad, the Acting Assistant Secretary for Financial Stability, stated that Treasury “strongly disagree[s] with a number of your statements and your conclusions regarding certain details of the fund manager selection process that you believe were not sufficient.”