Bank of America Corp.'s (BAC) Merrill Lynch Alternative Investments LLC unit announced Monday that it had agreed to sell its fund of hedge funds portfolio, with $1.2 billion in assets under management, to Man Group plc, in what some industry sources see as a move to help the financial institution keep up with new requirements under the Volcker Rule.
The deal, which is set to close in the second quarter of 2015, calls for London-based Man Group to make an upfront payment of $2.9 million in addition to paying 35% of the net management fees generated by the portfolio over a five-year period. Total earn-outs can not exceed $30 million.
Two industry sources said the deal is likely connected to new regulations implied under the Volcker Rule section of the Dodd-Frank Act, which officially came into effect as it presently stands in December 2013, that limit big banks' exposure to hedge funds and private equity investments. Bank of America did not immediately respond to calls seeking comment.
One provision of the rule requires big banks to divest most of their investments in most other hedge funds and private equity businesses they own a stake in by July 2015. However, they may be given some additional time to cash out of some of these investments.
The big banks can launch hedge funds and private equity funds on behalf of their own clients, as long as they cut their stakes down to 3% within a year after setting up those funds.