Merrill Ramps Up Private-Equity Push

The Wall Street Journal wrote in an April 18 interview with Thain that the investment bank "plans to make at least two more big investments, one in Latin America and one in Europe." And on April 13, Dow Jones Chinese Financial Wire quoted Damian Chunilal, head of Merrill's Pacific Rim origination, saying that infrastructure, real estate and private-equity funds are also on the drawing board.

Dick Bove, an analyst at Ladenburg Thalmann, says the private-equity strategy is a good one, particularly if it targets money from investors outside the U.S. who want to take advantage of the weak dollar and the fact that many U.S. financial institutions are trading below book value.

"If you have euros or rupees or yuan or pesos and you're looking at asset values that are above the market value of the companies you're looking at, this is a candy store," Bove says.

While a Merrill Lynch executive says the firm's private-equity investing strategy is drawing heavily on money from outside the U.S., it is not clear how much of the investment will take advantage of the cheap dollar and the weak state of U.S. financial companies.

The infrastructure fund, for example, will invest in government-owned assets such as roads, bridges and utilities. Such investments have become very popular of late, following the success of Macquarie Bank of Australia, a pioneer in infrastructure deals. But the jury is still out on whether these funds will be able to meet their targeted returns, or whether they will turn out to be another dangerous fad, much like the frenzy for securitization that became the undoing of Stanley O'Neal, Thain's predecessor.

Calls to Merrill executives, including Nate Thorne, who will manage the $6 billion private-equity vehicle, were referred to a spokeswoman, who declined to elaborate on the public statements made by firm executives.

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