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Merrill's Hedge Fund Buy

The broker adds a firm with hedge fund services

Merrill Lynch


is taking a minority stake in DiMaio Ahmad Capital, an alternative asset-management firm that specializes in credit products and was co-founded by a former

Credit Suisse

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veteran bond specialist Jack DiMaio.

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As part of the deal, Merrill Lynch has also committed "proprietary capital" through its hedge fund development and management group, it says. Exact terms of the deal were not disclosed.

D/A Capital was founded by DiMaio and Nasser Ahmad in April 2005, as a spin-off to Credit Suisse Alternative Capital unit. It manages $2 billion in hedge fund assets and $1 billion in various structured vehicles. The firm will remain independent, according to a release.

Merrill's investment comes at a time when other large brokerage firms are looking to snap up hedge fund capabilities. Last week, reports said that

Morgan Stanley

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has resumed discussions to acquire hedge fund operator, FrontPoint Partners LLC of Greenwich, Conn., which has $5.8 billion in assets. Morgan Stanley's CEO John Mack had been interested in the firm last year, but talks stopped short when the price tag of $1 billion was too high for Mack's taste.

D/A Capital referred questions to a Merrill Lynch spokeswoman. Merrill Lynch did not return calls immediately.