Legacy Securities Public Private Investment Fund Application

Application for Treasury Investment in a Legacy Securities Public-Private Investment Fund
This application (this “Application”) is for private assets managers (“Applicants”) to apply to the
U.S. Department of the Treasury (“Treasury”) to be pre-qualified to serve as a manager (a “Fund
Manager”) of a Legacy Securities Public-Private Investment Fund (each, a “Fund”) that will invest
in legacy securities (“Eligible Assets”) on behalf of taxpayers and private investors pursuant to
terms set forth in Attachment I.
Fund Managers will be pre-qualified based upon criteria that are anticipated to include:
•
•
•
•
•

Demonstrated capacity to raise at least $500 million of private capital.
Demonstrated experience investing in Eligible Assets, including through performance
track records.
A minimum of $10 billion (market value) of Eligible Assets currently under management.
Demonstrated operational capacity to manage the Funds in a manner consistent with
Treasury’s stated Investment Objective while also protecting taxpayers.
Headquarters in the United States.

All Applications must be submitted no later than 5:00 p.m. ET on April 10, 2009.
I INFORMATION REQUIRED
This section identifies the primary information the Applicant must provide.
A.

Qualifications and Performance History

1.
Organizational Background. The Applicant must provide information and/or charts
showing its business entities or units, with particular detail on entities or units that currently
manage portfolios of Eligible Assets. The Applicant must describe any changes in ownership or
major changes in corporate structure in the last 3 years, and any anticipated future changes to its
ownership or corporate structure.
2.
Personnel. The Applicant must provide information regarding the relevant expertise of its
personnel. In particular, the Applicant must provide specific detail on personnel that currently
manage funds, accounts or other investment vehicles managing portfolios of Eligible Assets, the
names and experience of the personnel who will be assigned to manage the Fund and the
percentage of business time that each such person will devote to the Fund.
3.
Assets Under Management. The Applicant must provide information showing in detail the
number of funds, accounts or other investment vehicles it manages and the total assets under

management, with relevant totals and subtotals. The Applicant must include particular details on
Eligible Assets under management.
4.
Fundraising. The Applicant must describe its expectations for fundraising from private
investors for equity capital commitments to the Fund (including the amount of equity capital
proposed to be raised and anticipated timing). The Applicant must note whether, and if so how, it
plans to structure the Fund to facilitate the participation of retail investors in the Fund. In addition,
the Applicant must provide examples of its experience fundraising for funds, accounts or other
investment vehicles that primarily invest in Eligible Assets within the past 5 years. The Applicant
must include its expectations as to the composition of the private investor base (e.g. financial
institutions, foundations, public pension plans, university and other endowments, high net worth
investors and/or retail investors).
5.
Past Performance. The Applicant must provide a table showing the gross and net returns
for its funds, accounts or other investment vehicles that invest primarily in Eligible Assets for each
of the past 5 years ending December 31, 2008. The Applicant must describe in detail how its
returns are calculated.
6.
References. The Applicant must provide reference contacts for the 3 largest limited
partners in aggregate invested in its funds, accounts or other investment vehicles that invest
primarily in Eligible Assets over the last 3 years, including name, title, organization and phone
number.
7.
Custodians. The Applicant must list the top 3 custodians with which it currently processes
assets.
8.
Small, Veteran-, Minority- and Women-Owned Businesses. If the Applicant is a small,
veteran-, minority- or women-owned business, it must provide evidence of such status and
describe the structure of the partnership it expects to form with other private asset managers, if
necessary, in order to meet the criteria outlined in Attachment I, if applicable.
B.

Proposed Fund

1.
Structure. The Applicant must describe the proposed structure of the Fund and include a
proposed structure chart.
2.
Summary of Terms. The Applicant must provide a summary of proposed material terms of
the Fund, including a proposed drawdown schedule and whether it plans to (i) recycle realized
capital; (ii) have voluntary withdrawal rights (which withdrawal rights will be subject to
limitations agreed with Treasury); (iii) make use of Treasury Debt Financing as defined in
Attachment I and (iv) finance the purchase of Eligible Assets through Legacy TALF, any other
Treasury program or debt financing raised from private sources, subject to the restrictions
described in Attachment I. In addition, the Applicant must describe proposed covenants relating to
allocation of investment opportunities, competing funds and investments away from the Fund.
3.
Debt Financing. The program currently contemplates the Treasury will provide Treasury
Debt Financing in an amount up to 50% of a Fund’s total equity capital; provided that Treasury
Debt Financing will not be available to any Fund Manager in respect of a Fund in which the private

investors have voluntary withdrawal rights. Treasury will consider requests for Treasury Debt
Financing of up to 100% of a Fund’s total equity capital subject to restrictions on asset level
leverage, withdrawal rights, disposition priorities and other factors Treasury deems relevant. To
the extent the Applicant is interested in receiving Treasury Debt Financing above 50% of total
equity capital, it must provide a description of the amount of the leverage requested along with the
terms as noted above.
4.
Proposed Fees. The Applicant must describe any fees it proposes to charge to private
investors in the Fund, including but not limited to management fees and incentive fees.
Additionally, the Applicant must provide information on a proposed fee structure for Treasury
consistent with the terms in Attachment I.
5.
Tax Considerations. The Applicant must describe its proposals for efficient tax structuring
for Treasury and private investors.
C.

Investment Strategy

1.
Asset Management Strategies. The Applicant must describe the asset management
strategies it utilizes to manage its existing portfolios of Eligible Assets. In addition, the Applicant
must describe the following: (i) the application of its asset management strategies to the
management of the Fund in furtherance of the Investment Objective of the Fund pursuant to the
Investment Strategy (each as described in Attachment I); (ii) Applicant’s methodology for
evaluating, pricing and purchasing Eligible Assets, (iii) Applicant’s expectations as to the use of
leverage and (iv) potential considerations that may argue for a deviation from a long-term buy and
hold strategy.
2.
Risk Management. The Applicant must describe the risk metrics and limits it employs to
manage portfolios of Eligible Assets. The Applicant must include particular details on the risk
metrics and limits to be employed in managing a Fund investing in Eligible Assets on behalf of
taxpayers and private investors.
D.

Governance and Management

1.
Principal Transactions. The Applicant must describe the safeguards it intends to employ to
ensure that the Fund does not, directly or indirectly, acquire Eligible Assets from or sell Eligible
Assets to its affiliates, any other Fund Manager or their respective affiliates or any private investor
that has committed 10% or more of the aggregate private capital raised by the Fund.
2.
Other Conflicts of Interest. The Applicant must identify any other real or potential
conflicts of interest it may have in managing a Fund as described in Attachment I, and explain how
it will avoid or ameliorate any such conflicts. The Applicant must include the interests of its
affiliates in the answer. In addition, the Applicant must describe its philosophy for fulfilling its
duty to the Treasury and the taxpayers as investors in the Fund in light of its proprietary interests,
those of the private investors in the Fund and those of its other clients. The Applicant must
describe any covenants it has to allocate purchases of Eligible Assets to existing funds, accounts or
other investment vehicles it manages.

3.
Prevention of Waste, Fraud and Abuse. The Applicant must describe its proposals to
minimize waste, fraud and abuse.
4.
Alignment of Incentives. The Applicant must describe any additional proposals to ensure
that incentives for investing private capital and Treasury capital are aligned.
5.
Oversight. The Applicant must indicate if its organization employs a risk oversight officer
that operates independently from private asset managers and other investment-policy decision
makers. The Applicant must identify the most important attributes of its particular risk oversight
framework.
6.
Taxes. The Applicant must indicate the following: (i) whether it and each of its affiliates
have paid all material federal, state and local taxes in the United States (“Taxes”) and filed
all material Tax returns required to be filed through the date hereof; and (ii) that there is
no material Tax deficiency that has been, or could reasonably be expected to be, asserted against it
or any of its affiliates, except any Taxes the amount or validity of which are currently being
contested in good faith.
7.
Regulatory and Legal Actions. The Applicant must identify any Federal or State citations
or enforcement actions its organization or any affiliate has received or been warned of, and any
litigation or legal proceeding involving its asset management or investment consulting services
involving fraud, negligence, criminal activity, or breach of fiduciary duty.
8.
Investor Due Diligence. The Applicant must describe its due diligence process for
assessing potential investors. In particular, the Applicant must describe its anti-money laundering
and “know your client” policies and procedures.
E.

Valuation, Monitoring and Reporting

1.
Valuation. The Applicant must describe the methodology it intends to employ for
determining the fair market value of the Fund’s Eligible Assets.
2.
Monitoring. The Applicant must describe the methodology it intends to employ for
monitoring acquisitions and dispositions of Eligible Assets on behalf of the Fund, including
tracking and maintaining records of (i) trades executed (all pertinent financial and settlement
information) and (ii) notifications of principal and interest payments.
3.
Reporting. The Applicant must describe the format whereby it intends to provide the
reporting information required by the Treasury, as described in Attachment I (including
transaction reports, monthly reports and audited and unaudited financial statements). In particular,
describe how it will ensure sufficient transparency while protecting the commercial interest of its
investors.
II DEADLINE AND COMMUNICATIONS
All Applications for investment by Treasury must be submitted by 5:00 p.m. ET on April 10,
2009.

All Applicants are responsible for seeking clarification on any issues in this Application that the
Applicant does not fully understand. All questions should be directed to the following:
Treasury Contact:
U.S. DEPARTMENT OF THE TREASURY
Office of Financial Stabililty: Legacy Securities Public-Private Investment Fund
1500 PENNSYLVANIA AVENUE NW
WASHINGTON, DC 20220
Phone Number: 202-622-9911
E-mail Address: SecuritiesPPIF@do.treas.gov

Treasury, in its sole discretion, may respond orally to any questions about the Application.
Substantive questions should be submitted as soon as possible. No other channel of
communication between the Applicant and an officer, employee, or agent of Treasury regarding
this Application is permitted, and no information gained from any such communication may be
considered in any way binding or limiting on the Treasury.
The Treasury, in its sole discretion, may change the deadline for submission of Applications.
III SUBMISSION OF APPLICATIONS
All Applications must be delivered by courier, or in PDF format via email to Treasury by the
deadline.
Treasury has no obligation to consider an Application received after the deadline provided above.
The only acceptable evidence of the time of receipt is the Treasury’s time/date stamp on the
Application or other evidence of receipt maintained by the Treasury.
The Applicant, by submitting an Application to be a Fund Manager, warrants and represents that it
understands and agrees to all terms of this Application and the selection process, including the
following:
1. Treasury, in its sole discretion, will select a Fund Manager to perform the services in this
Application, based on its determination of what is in the best interests of the United States.
2. No communication, question, response or clarification, whether oral or written, about the
requirements of this Application shall in any way serve to limit the Treasury’s complete and
sole discretion in selecting a Fund Manager and in making decisions in connection with this
Application.
3. Treasury may select, reject, or request additional clarifying information about an Applicant’s
Application without further discussion with the Applicant.

IV APPLICATION FORMAT
All Applications must include a 1 page cover letter, executed by a person legally authorized to
represent the Applicant, that includes the following information: name, title, address, e-mail, and
office and mobile phone numbers of the individual designated to receive communications from
Treasury and a certification statement that the Applicant (i) understands and agrees to the terms
and selection process set forth in this Application; (ii) understands and agrees to the confidentiality
provisions in Section V; (iii) understands and agrees that it will have a fiduciary duty to perform
all services in the best interests of the Fund; and (iv) is capable of providing the services identified
in this Application. The cover letter must also indicate whether the Applicant is a small, veteran-,
minority- or women-owned business.
All Applications must include a document not to exceed 40 one-sided pages, in 12-point font with
1 inch margins, addressing the items in Section I above.
Applications must not include any other documents or attachments. Applications must not include
any generic marketing or sales information, or rely on cross-references to other documents.
V CONFIDENTIALITY
Treasury considers any information provided to an Applicant in evaluating its Application to be
strictly confidential and must not be disclosed to any third party outside the Applicant’s corporate
organization, nor duplicated, used or disclosed in whole or in part for any purpose other than to
prepare an Application. Under no circumstances shall any information received in connection with
an Application be disclosed to any third party outside the Applicant’s corporate organization
without the express prior written consent of the Treasury.
VI RESERVATION OF RIGHTS
The release of an Application and Treasury’s receipt of any information or responses shall not, in
any manner, obligate the Treasury to perform any act or otherwise incur any liabilities.
Treasury assumes no obligation to reimburse or otherwise compensate the Applicant for expenses
or losses incurred in connection with this Application.
Treasury shall have the unlimited right to use, for any governmental purpose, any information
submitted in connection with this Application.
Treasury reserves the right to: (1) modify the requirements in this Application or withdraw this
Application at any time; (2) decide not to select any Applicants; (3) reject an Application without
inviting the Applicant to submit a new Application; (4) negotiate with and select any Applicant
considered qualified; (5) request, orally or in writing, clarification of or additional information on
a response; (6) waive minor informalities or irregularities, or a requirement of this Application; (7)
accept any Application in part or in total; and (8) reject an Application that does not conform to the
specified format or other requirements of this Application.
Any selection and designation of a private manager pursuant to this Application shall be
contingent upon and subject to availability of funding.

Attachment I:
Legacy Securities Public-Private Investment Funds
Summary of Terms
Summary of Program

The United States Department of the Treasury (“Treasury”) will
participate in Legacy Securities Public-Private Investment Funds
(“Funds”) that will invest in legacy securities that will initially include
securities backed by mortgages on residential and commercial properties
(“Eligible Assets”) on behalf of taxpayers and private investors.
The Funds are one component of a broader array of measures targeting
legacy assets in order to encourage new credit formation. This program
contributes to that effort by improving the health of financial institutions
through removal of legacy assets from their balance sheets and by
helping to increase the liquidity and functioning of markets for these
securities.
Private asset managers (“Fund Managers”) will apply to be pre-qualified
to raise private capital to invest in joint investment programs with
Treasury.
Fund Managers will raise equity capital from private investors and
receive matching Treasury equity funding (as described below).
Taxpayers (through the Treasury) and private investors will generally
share any profits or losses on a pro rata basis in accordance with equity
capital investments, except as described under “Treasury Warrants”
below.

Investment Objective

To generate attractive returns for taxpayers and private investors through
long-term opportunistic investments in accordance with the Investment
Strategy.

Investment Strategy

The Funds will seek to achieve the Investment Objective by following
predominantly a long-term buy and hold strategy, but Treasury will
consider other strategies involving limited trading.

Fund Structure

Treasury and a vehicle controlled by the applicable Fund Manager
through which private investors will invest in a Fund (each, a “Private
Vehicle”) will be the sole investors in a Fund. Except as described under
“Asset Purchases / Dispositions” below, Treasury and the applicable
Private Vehicle will invest and divest proportionately at the same time
and on the same terms and conditions in the Eligible Assets. Additional
detail with respect to Fund Structure can be found under “Fund Structure
Detail” below.

Pre-Qualification of
Fund Managers

Private asset managers wishing to participate in this program should
submit the application found at http://www.financialstability.gov/ to
Treasury as part of the selection process. Fund Managers will be
pre-qualified based upon criteria that are anticipated to include:
•
•
•
•
•

Demonstrated capacity to raise at least $500 million of private
capital.
Demonstrated experience investing in Eligible Assets, including
through performance track records.
A minimum of $10 billion (market value) of Eligible Assets
under management.
Demonstrated operational capacity to manage the Funds in a
manner consistent with Treasury’s stated Investment Objective
while also protecting taxpayers.
Headquarters in the United States.

Other criteria are identified in the application. Treasury will consider
suggestions from Fund Managers to raise equity capital from retail
investors.
Application Deadlines

An applicant must submit its application to Treasury no later than April
10, 2009.
Treasury expects to inform an applicant of its preliminary approval on or
prior to May 1, 2009.
Applicants will have a limited period of time from preliminary approval
to raise at least $500 million of private capital and demonstrate
committed capital before receiving final approval from Treasury.
Applicants will be asked to describe the amount of time they anticipate
needing to raise private capital in their applications. In the event
applicants are not able to so demonstrate, Treasury will consider other
applications.

Treasury Funding

Treasury expects to approve approximately 5 Fund Managers to raise
private capital to invest in joint investment programs with Treasury. The
number of Fund Managers may be increased depending on Treasury’s
evaluation of the applications received and determination of what is in
the best interests of taxpayers. Treasury will consider expanding the
program through additional fundings in the future.

Eligible Assets

The Eligible Assets will initially be commercial mortgage backed
securities and residential mortgage backed securities issued prior to 2009
that were originally rated AAA or an equivalent rating by two or more
nationally recognized statistical rating organizations without ratings
enhancement and that are secured directly by the actual mortgage loans,
leases or other assets and not other securities (other than certain swap

positions, as determined by the Treasury). The loans and other assets
underlying any Eligible Asset must be situated predominantly in the
United States, which limitation is subject to further clarification by
Treasury. The Eligible Assets must be purchased solely from financial
institutions from which the Secretary of the Treasury may purchase
assets pursuant to Section 101(a)(1) of the Emergency Economic
Stabilization Act of 2008 (“EESA”).
Drawdowns

Treasury equity capital will be drawn down in tranches to provide for
anticipated investments (subject to limitations to be agreed with
Treasury); provided that, except as otherwise agreed by Treasury,
Treasury equity capital may only be drawn down at the same time and in
the same proportion as private capital is drawn down. Debt financing (as
described below) will be funded concurrently with drawdowns of equity
commitments.

Asset Purchases /
Dispositions

Fund Managers will control the process of asset selection and pricing.
Fund Managers will also control the process of asset liquidation, trading,
and disposition.

Governance and
Management

Treasury expects to define final terms and conditions for the Funds prior
to fundraising.
Funds will be managed by Fund Managers, not the Treasury.
Treasury will retain the right to cease funding of committed but undrawn
Treasury equity capital and debt financing in its sole discretion.
Fund Managers will be required to present monthly reports to Treasury
on Eligible Assets purchased, Eligible Assets disposed, current
valuations of Eligible Assets and profits/losses on Eligible Assets
included in each Fund.
Prices of Eligible Assets for reporting purposes must be tracked using
third party sources and annual audited valuations by a nationally
recognized accounting firm.
Each Fund Manager may only purchase Eligible Assets from sellers that
are not affiliates of such Fund Manager, any other Fund Manager or their
respective affiliates or any private investor that has committed at least
10% of the aggregate private capital raised by such Fund Manager.
Private investors may not be informed of potential acquisitions of
specific Eligible Assets prior to acquisition.
Fund Managers must agree to waste, fraud and abuse protections for the
Fund to be defined by Treasury in order to protect taxpayers.

Fund Managers must agree to provide access to relevant books and
records of the Fund for Treasury, the Special Inspector General of the
TARP, the Government Accountability Office and their respective
advisors and representatives to enable appropriate oversight and taxpayer
protection.
Treasury Capital Term Fund Managers will make proposals for the term of a Fund with the
intention to maximize returns for taxpayers and private investors, but no
greater than 10 years, subject to extension with Treasury’s consent.
Debt Financing

Each Fund Manager will have the option to obtain for each Fund secured
non-recourse loans from Treasury (“Treasury Debt Financing”) in an
aggregate amount of up to 50% of a Fund’s total equity capital; provided
that Treasury Debt Financing will not be available to any Fund Manager
in respect of a Fund in which the private investors have voluntary
withdrawal rights. Treasury will consider requests for Treasury Debt
Financing of up to 100% of a Fund’s total equity capital subject to
restrictions on asset level leverage, withdrawal rights, disposition
priorities and other factors Treasury deems relevant. Fund Managers will
have the opportunity to request this additional Treasury Leverage and
propose additional terms in their applications.
Funds may also finance the purchase of Eligible Assets through Legacy
TALF, any other Treasury program or debt financing raised from private
sources; provided that Treasury equity capital and Private Vehicle capital
must be leveraged proportionately from such private debt financing
sources.
The Treasury Debt Financing will be secured by the Eligible Assets held
by the applicable Fund.
Loans made by Treasury to any Fund will accrue interest at an annual rate
to be determined by the Treasury and will be payable in full on the date of
termination of the Treasury Capital Term.

Treasury Warrants

Proceeds received by a Fund will be divided between the Treasury and
the applicable Private Vehicle based on equity contributions, except that
Treasury will take warrants as required by EESA to protect the interests
of taxpayers. The terms and amounts of such warrants will be
determined in part based on the amount of Treasury Debt Financing
taken.

Fees

Fund Managers may charge private investors fees in their discretion. The
Treasury will consider the fees proposed to be charged to private
investors when evaluating applications by private asset managers.
For Treasury equity capital, the Treasury will accept proposals for fixed

management fees (“Treasury Fees”) to apply as a percentage of equity
capital contributions for invested equity capital. Treasury Fees and
Treasury’s share of Fund expenses will be paid solely out of distributions
with respect to Treasury equity capital.
Any fees paid to a Fund Manager or its affiliates in connection with a
Fund other than Treasury Fees and management or incentive fees
charged to private investors should accrue to the benefit of the Treasury
and private investors on a pari passu basis based on equity capital
commitments.
Small, Veteran-,
Minority- and
Women-Owned
Businesses

To ensure a diversity of participation, the Treasury will encourage small,
veteran-, minority- and women-owned private asset managers to partner
with other private asset managers, if necessary, in order to meet the
criteria identified above for assets under management and ability to raise
private capital.

Fund Structure Detail

Private investors may be given voluntary withdrawal rights at the level of
a Private Vehicle, subject to limitations to be agreed with Treasury
including that no private investor may have the right to voluntarily
withdraw from a Private Vehicle prior to the third anniversary of the first
investment by such Private Vehicle.
The Treasury will request suggestions on structure from Fund Managers,
including with respect to possible recycling of realized capital.
It is anticipated that Private Vehicles will be structured so that benefit
plan investors, within the meaning of Section 3(42) of the United States
Employee Retirement Income Security Act of 1974, as amended, will be
eligible to participate as indirect investors in the Funds.