Six years ago, wanting to ramp up its institutional asset management business, Merrill Lynch shelled out $300 million for $12 billion-in-assets Hotchkis and Wiley. Employees at the Los Angeles firm got rich pay packages, but the honeymoon was short-lived. Portfolio managers defected, the two principals soon retired, and pension clients kept their distance.
Now comes the divorce.
Sources tell Institutional Investor that the brokerage giant is shopping what’s left of Hotchkis and Wiley and may be close to cutting a deal. “Merrill just wants to close the book and move on,” says a source. “It was supposed to have been done by the end of April, but there’s been some delay.” It remains unclear who might buy the business; some predict it will be a foreign institution that wants to break into U.S. asset management.
When Hotchkis and Wiley was acquired, its $12 billion made up about one third of Merrill’s total institutional separate-account business. Then a year later Merrill made an even bigger commitment to the defined benefit market, buying London’s Mercury Asset Management for more than $5.2 billion and picking up $177 billion in mostly institutional assets.
Suddenly, Hotchkis and Wiley shrank from a cornerstone to a pebble, while Merrill struggled to fit the firm into its framework. Last year Merrill dropped the Hotchkis and Wiley name, completely folding the company into its asset management business, which itself was renamed Merrill Lynch Investment Managers. Today the Los Angeles division manages about $10 billion. Merrill owns that book of business, as well as the rights to the name Hotchkis and Wiley, and the division could probably fetch as much as $200 million, industry members say.
Jeff Peek, head of asset management at Merrill, was out of the country and did not return calls. A Merrill spokeswoman says the firm doesn’t comment on rumors, adding, “We remain very committed to the U.S. institutional business and are evaluating ways in which we can strengthen our presence.”
