BofA Merrill Spins Off BAML Capital Partners Private-Equity Unit to Managers

Spinoff comes as big banks comply with strict Volcker rules on investment of principal

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Bank of America Merrill Lynch has reached an agreement with senior leaders of BAML Capital Partners to separate the private-equity buyout unit from the bank, allowing them to form an independent management company.

The move, announced in a memo written by BAML Capital Partners chief Jim Forbes and published Wednesday in a Fortune blog, comes as a result of the bank’s decision to limit new investments in its Global Principal Investments (GPI) group and “focus our team’s efforts on portfolio monetization.”

The bank’s exit from its $5 billion private-equity (PE) buyout business reflects a trend among big banks to extricate themselves from stricter principal-investment regulations following passage of the Dodd-Frank reform bill’s Volcker rule. Goldman Sachs unwound most of its positions in its Principal Strategies proprietary trading desk in 2010, and Morgan Stanley last month sold off its Frontpoint Partners hedge fund to the fund’s managers.

BAML expects to complete the transaction before the end of June, and the BAML Capital Partners team will re-launch under a new name, Forbes wrote in his memo. “In addition to managing the Bank of America portfolio, the team has indicated their intent to raise third party capital for new investments.”

Bank of America spokesperson Jackie Fine confirmed the plan in an email.

“We will continue to own the assets,” Fine said. “The new company will manage them on our behalf for a fee.  This group invested the bank’s capital in PE investments.  It was not engaged in raising third-party capital from clients.”

The bank’s website describes GPI as a unit that invests capital on behalf of the company to enhance strategic growth opportunities and generate returns. GPI business units—BAML Capital Partners, BAML Global Strategic Capital and BAML Real Estate Principal Investments—represent a diverse range of global investing opportunities and successful partnerships with internal lines of business and clients, according to the site.

In the first quarter of 2011, GPI returned more than $2 billion of capital to the company through strategic asset sales and receipt of IPO and dividend distributions on top of $5 billion in capital returned to the company in 2010, Forbes said.

Read about Bank of America's first-quarter 2011 earnings at AdvisorOne.com.

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