MLIM funds ‘on hold’ after US staff losses

The loss of Merrill Lynch Investment Management’s (MLIM) North American regional team to another fund manager, and its subsequent replacement by BlackRock, has prompted researcher Standard & Poor’s to place two of the manager’s funds ‘on hold’.

MLIM appointed BlackRock’s 10-strong small and mid cap growth team to manage the North American portion of its regionally neutral small cap portfolio under an investment advisory agreement effective from last Friday.

The appointment was made to replace the four managers in the MLIM North American team who moved to another manager, which is understood to be Oppenheimer Capital.

Standard & Poor’s fund analyst Ben Sheehan said the agreement meant BlackRock managed approximately 55 per cent of the funds in the Merrill Lynch wholesale global small cap fund (unhedged) and the Merrill Lynch wholesale hedged global small cap fund, with the remainder managed out of London and Japan by MLIM.

The two global small cap funds previously had three star ratings from Standard & Poor’s, but were placed ‘on hold’ yesterday with news of the replacement.

Sheehan said it was expected that the completion of the MLIM and BlackRock merger, which started earlier this year, would see BlackRock directly manage the North American portion of the funds.

He said BlackRock and MLIM used different investment approaches.

“On the face of it, there appears to be some differences. In Merrill Lynch’s own material they said the BlackRock team uses a more GARP [growth at a reasonable price] approach, which places more emphasis on valuations,” he said.

By contrast, the other MLIM regional teams in London and Japan use a growth-oriented approach.

Sheehan said, globally, the small cap team would continue to be coordinated by the London-based head of the European opportunities team, Carl Lee.

He said it was important that Standard & Poor’s met with the new BlackRock team before the ‘on hold’ rating was lifted, but there had been no date set for such a meeting.