Bank of America Corp., the biggest U.S. lender by assets, plans to wind down its flagship $5 billion buyout fund as it seeks to preserve capital, said a person with knowledge of the plan.
The bank has made a “strategic decision” to sell most of the Capital Partners fund’s remaining investments over time, the person said, citing an internal memo sent late yesterday at the Charlotte, North Carolina-based company. The team managing those assets will become an independent firm, said the person, who declined to be identified because the plan isn’t public.
Regulators are pressuring banks to build capital and reduce riskier assets ahead of new international regulations requiring greater reserves. The Federal Reserve rejected Bank of America’s request to increase its dividend last month, making it the only lender among the largest four that didn’t win approval. JPMorgan Chase & Co., the second-biggest U.S. bank by assets, has said it may continue making private equity investments.
“Businesses in which they don’t have a leading market share are on the chopping block,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “I’ll bet the private equity investments require an extra layer of capital under the new rules, so the returns probably don’t justify their use of capital.”
The fund returned $2 billion to investors in the first quarter, and about $5 billion last year, the person said. Bank of America, which won’t fund new private equity investments through Capital Partners, still owns the assets and will pay fees to the spinoff firm, the person said. Most of the capital invested in the fund came from Bank of America, the person said.
The memo was sent from Jim Forbes, head of the bank’s global principal investments unit which includes the Capital Partners fund, said Jerry Dubrowski, a Bank of America spokesman who confirmed the contents of the letter. It is unclear if Forbes will remain, said the person.
“We recently determined that private-equity investments were not strategically critical to our business going forward,” Dubrowski said. “With limited investment activity, it made sense for BAML Capital Partners to spin off from the bank.”
The new firm will seek to raise funds, Dubrowski said. Most of Capital Partner’s assets were originally owned by Merrill Lynch, he said.