Last month, even as Merrill was negotiating the sale of the $10 billion Los Angeles operation to Stilwell Financial, star international equity portfolio manager Sarah Ketterer bolted to start her own firm, Causeway Capital Management. The departure of Ketterer is especially troublesome because her father, John Hotchkis, co-founded the firm, and it raises more questions about the value of the remaining franchise. Ketterer, 40, quit along with Harry Hartford, 42; together they ran the $3.2 billion Mercury HW International Value Fund. The Ketterer-led piece of the operation, which last year was renamed Merrill Lynch Investment Managers, was considered the crown jewel of what otherwise has been a struggling unit. Sources say talks between Merrill and Stilwell Financial have stalled as a result of Ketterer’s and Hartford’s exits; it was still unclear at press time whether any pension clients would defect to Causeway Capital. Ketterer and Hartford were working without contracts at the time they left, and Merrill’s reportedly aggressive efforts to retain them were turned down, according to sources. Ketterer declined to comment on her departure, except to say that she’s doing everything possible to make sure the breakup is amicable. That’s a wise move. When a group of Hotchkis and Wiley employees bolted in 1996 to set up Metropolitan West Asset Management - shortly before Merrill closed its deal to buy Hotchkis and Wiley - Hotchkis and Wiley sued them, at the instruction of the brokerage giant. Says Ketterer, “We didn’t want to give Merrill any ammunition.”
