Peter Stamos, the former McKinsey & Co. consultant who joined New York Mets co-owners Fred Wilpon and Saul Katz to start a hedge-fund firm in 2002, reacquired their stakes through a management buyout.
Stamos Capital Partners LP bought back interests held by the two partners as well as Merrill Lynch & Co., the New York-based firm disclosed in a regulatory filing. Katz and Wilpon amassed a fortune by developing real estate through their Sterling Equities Inc., then invested much of the excess cash with Bernard Madoff and diversified their assets by providing seed capital to Stamos.
The transaction enables Stamos to take advantage of a buyer’s market for stakes that financial institutions hold in money-management firms. Merrill is now owned by Bank of America Corp., which has been divesting holdings of hedge funds such as Stamos Capital to comply with the 2010 Dodd-Frank Act.
“BofA is getting rid of all these peripheral operations,” and “Stamos himself probably figured this was a very attractive time” to buy the holders out, said Julian Rundle, the chief investment officer of Dorset Management LLC, a New York-based firm that creates customized portfolios of hedge funds for institutional clients. “When the fish come buying, that is when you want a hook in the water.”
Stamos, who also serves as the chairman of Major League Baseball’s investment advisory board, didn’t return telephone calls seeking comment. Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America, and Matthew Hiltzik, a spokesman for Sterling Equities at Hiltzik Strategies, both declined to comment on the sale.
Stamos’s firm had $6.6 billion of assets as of May 31 that are invested through two business units, one that provides clients with customized portfolios of hedge funds and another, run by Matt Frymier, a former Bank of America executive, that manages funds that invest in other hedge funds. Stamos was dropping the Sterling portion of its name as it undertook the buyout, the firm disclosed in a Sept. 17 filing with the U.S. Securities and Exchange Commission.
“We believe that it is in the best interest of our funds, fund investors and managed account clients for the firm’s management team to own a significant majority of the firm’s equity,” Stamos said in the filing. “Although we have had a long relationship with each of the departing investors,” the buyout “does not affect how we manage the investment of the funds” or the firm’s day-to-day operations.
Wilpon, 76, and Katz plan to maintain their investments in Sterling Stamos’s hedge funds, according to a person familiar with the matter who requested anonymity because the information is confidential. Katz, Wilpon and their affiliates had about $393 million invested in Sterling Stamos funds as of September 2008, according to a lawsuit filed by Irving Picard, the liquidator for Madoff’s securities firm in the wake of the Ponzi schemer’s December 2008 arrest. The current figure is lower, said the person familiar with the matter.
The two partners, who are brothers-in-law, founded Sterling Equities in 1972 and turned it into a major real estate developer, completing projects such as as the Lipstick Building on New York’s Third Avenue and a tower for the former investment bank Bear Stearns Cos.
Sterling entered the hedge-fund business 11 years ago by teaming up with Stamos, an economist who, in addition to his career at McKinsey, had also started and sold a health-care consultancy to Perot Systems Corp. and worked as chief of staff for Bill Bradley, the former U.S. senator from New Jersey.
Katz and Wilpon withdrew money from their accounts with Madoff to provide startup capital for the venture and to invest “substantial sums” in its funds, according to Picard’s suit, which sought to recover $1 billion from the two partners by alleging that they should have known Madoff was running a fraud.
The Mets owners agreed in March 2012 to pay $162 million to settle Picard’s case. Under the agreement, the amount Wilpon, Katz and related parties owe the Madoff estate from fictitious profits could be totally or partially offset by their own claims for $178 million in losses.
Merrill Lynch began marketing Sterling Stamos’s funds to institutional clients in 2004, and three years later, the brokerage bought a non-controlling 50 percent interest in the hedge-fund manager, 25 percent of which came from Sterling Equities, according to Picard’s lawsuit. Sterling received $115 million for its share, the lawsuit said.
Myron Scholes, the Nobel laureate economist, became a senior adviser to the firm in 2011, according to last month’s filing. He now owns a stake of at least 10 percent in the firm, the filing showed.