NEW YORK (Dow Jones)--Hedge funds, private-equity firms and other investors are curious but cautious about investing in the Treasury Department's new $500 billion public-private program for buying toxic assets.

Private investment managers had been eagerly awaiting details on the plan, specifically wondering how much money they'd be allowed to borrow, how much risk the government would mitigate in order to sweeten the pot, and who would be running the funds. Now they have a few more details, but still numerous concerns.

For one, private investment managers who would be charged with running the new funds aren't used to being told what to do. But that could be exactly what happens when their partner is the U.S. government.

"Traders and portfolio managers don't want to be investing with career bureaucrats," said Kevin Hebner, strategist for global macro investment fund Third Wave Global Investors.

Hebner said he expects the trickle of investment into the program to be slow at first - with investors pumping in around $10 billion per month over the first few months of the program - before they figure out how well it's working. And even if participation picks up, he expects any positive effects on the market to be shown in a few years, not the six to eight months that some optimists have projected.

That doesn't mean people aren't excited. "We would definitely be interested in the asset classes that have been identified for the program," said Ron D'Vari, co-founder and chief executive of New Oak Capital in New York.

BlackRock Inc. (BLK) told CNBC Monday it's starting a mutual fund to invest in toxic assets. PIMCO founder Bill Gross said his firm will invest in the assets, too.

But there are lingering questions, and many investors, including pension funds for Florida and Boeing Co. (BA), still haven't decided if they'll invest.

Private-equity and hedge fund managers might be concerned that the Treasury didn't name them as part of pool of potential investors in the legacy loans program. The Treasury's fact sheet said, "The program will particularly encourage the participation of individuals, mutual funds, pension plans, insurance companies and other long-term investors."

Even for those investors who do participate, a point of contention will likely be the bid-ask spread on the legacy loans. The spread is large now regarding what price banks would be willing to sell the assets, and it remains to be seen how much the spread will narrow, said analyst David Trone from Fox-Pitt Kelton Cochran Caronia Waller.

Also, those investors interested in buying the legacy loans could be reticent at first, considering that the Treasury said Monday, "The exact requirements and structure of the Legacy Loans Program will be subject to notice and comment rule making."

Said Trone, "Some private investors may not want anything to do with this plan at any price because of the way the government has become radical in changing rules."

Distressed investors typically obsess over terms and conditions, and the government could come in and trample all over the legal contract, he said.

A New York-based financial-services investor cited problems with the Troubled Asset Relief Program.

"The government has not proven to be a reliable and trustworthy partner," he said. "They can change their mind."

But D'Vari of New Oak said that at current prices, the investment would be enticing.

"Clearly these assets aren't going to be sold at par," D'Vari said. "They are held on banks' balance sheets and held to maturity, which means if they were Triple-A rated securities they will have been held at par and not written down."

Even before these new details were released, several private investors had expressed interest in the public-private partnership.

On a fourth-quarter earnings conference call last week, executives from private-equity and hedge fund manager Fortress Investment Group LLC (FIG) said it's interested in investing in the Treasury Asset-Backed Loan Facility, or TALF, which has been expanded to include legacy assets. The executives said they needed more details. Fortress did not return a call seeking comment for this story.

The stock price of one potential hedge-fund and private-equity investor, Blackstone Group LP (BX), ended up 24% Monday, presumably on the Treasury plan.

Back in February, Blackstone Chairman and Chief Executive Stephen A. Schwarzman said the TALF program could help the value of real estate, an area in which Blackstone has billions of dollars set aside for future investments. Blackstone had no comment for this story.

One more thing to think about for those who want to participate is political implications, said Roger Freeman, an analyst at Barclays.

Any public company, particularly those that took TARP money, may be apprehensive to profit from this or even being viewed as profiting from this, Freeman said.

"It might be inviting oneself to a lot of criticism."

By Joseph Checkler and Jessica Papini
OF DOW JONES NEWSWIRES