Pimco To Get $3 Million/Quarter Fee For Fed Comml-Paper Program
18 July 2009 - 7:16AM
Dow Jones News
Bond giant Pacific Investment Management Co. will be paid at
least $3 million every three months to manage a U.S. Federal
Reserve program aimed at supporting short-term corporate borrowing
markets.
On Friday, the Federal Reserve Bank of New York released on its
Web site documents detailing arrangements around its various
emergency lending programs.
In one, the bank said it will pay Newport Beach, Calif.-based
Pimco a $3 million fixed fee per quarter "to compensate for
overhead and dedicated personnel" related to Pimco's management of
the commercial-paper funding facility program. Pimco also will get
an asset-management fee of 0.25 basis points per quarter on the
average of the month-end assets in the program.
As of July 15, the facility's net portfolio holdings were $112
billion.
Companies use the commercial-paper market to finance their daily
operations and meet payroll and other obligations. The program is
part of a collection of central bank lending initiatives aimed at
improving activity in various corners of the fixed-income market,
and was launched last year when this market for short-term
corporate debt froze in the wake of the Lehman Brothers
bankruptcy.
The Fed's efforts to revive the market have been counteracted by
the economic downturn, which means companies have less need for
cash. The commercial paper market, which hit a peak of $2.2
trillion in July, now stands at $1.097 trillion, the lowest level
since the central bank began tracking data in 2001.
The New York Fed recently reported that money manager BlackRock
Inc. (BLK) would minimally be paid $43 million to manage Fed
vehicles that hold the assets of Bear Stearns and American
International Group Inc. (AIG).
The Fed has faced various levels of controversy about how it has
selected investment managers for its various programs.
Pimco, a unit of Allianz SE (AZ), couldn't be reached for
comment.
-By Michael S. Derby; Dow Jones Newswires, 212-416-2214
michael.derby@dowjones.com
(Anusha Shrivastava contributed to this report.)