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Merrill Lynch to Acquire Stake in Sterling Stamos (Update6)

Date: Friday, May 25, 2007
Author: Bradley Keoun, Bloomberg

May 24 (Bloomberg) -- Merrill Lynch & Co., the world's biggest brokerage, agreed to buy a stake in Sterling Stamos Capital Management LP, a hedge fund backed by New York Mets principal owner Fred Wilpon.

Sterling Stamos, based in New York, manages about $4 billion and is led by Peter Stamos, 49, chairman of the investment advisory board for Major League Baseball, according to a Merrill Lynch statement today. Wilpon is chairman of Sterling Equities, which funded Sterling Stamos in 2002 and kept a limited-partner stake, according to his company's Web site.

The investment is Merrill's second this week in a hedge-fund manager. Like Morgan Stanley and Citigroup Inc., New York-based Merrill is drawn by the higher returns the funds generate from managing money for wealthy people and institutions. Merrill may accelerate the growth of Sterling Stamos by using its network of almost 16,000 brokers to recruit new investors.

``What they're seeing very clearly is that hedge funds make staggering amounts of money, and the people who are running these hedge funds are becoming billionaires,'' said Dick Bove, an analyst at Punk Ziegel & Co. in Lutz, Florida. By contrast, the investment banks' own businesses ``require a huge amount of infrastructure and people to get a relatively low return.''

Harvard Law School

Terms of Merrill's purchase weren't disclosed. The statement described Merrill's stake as a ``non-controlling'' investment.

Merrill agreed May 21 to buy a stake in GSO Capital Partners LP, run by former Credit Suisse Group investment banker Bennett Goodman. Last October, Merrill bought a stake in DiMaio Ahmad Capital LLC, a hedge fund founded by former Credit Suisse bond chief Jack DiMaio. Last week, Merrill said it will put money into a new investment business planned by Dow Kim, the departing co- head of trading and investment banking.

Shares of Merrill Lynch fell $1.21, or 1.3 percent, to $92.61 at 4 p.m. in New York Stock Exchange composite trading. They're little changed this year.

Stamos is a Rhodes Scholar with a degree from Harvard Law School, the statement said. He was the founder and chief executive officer of Stamos Associates Inc., a 30-person health- care consulting firm that was sold in 1997 to Perot Systems Corp.

He was once chief of staff for ex-U.S. Senator Bill Bradley, who was also a Rhodes Scholar. Stamos also served as a consultant with Booz Allen Hamilton and McKinsey & Co.

Track Record

``Peter is one of those guys with a lot of letters after his name who has actually done something in business,'' said David Katz, 43, an executive vice president at Great Neck, New York- based Sterling Equities. Merrill's broker network ``gives Peter some time to focus on running the funds,'' Katz said. ``Now he doesn't have to worry so much about finding money.''

The Katz family became familiar with Stamos when his consulting firm advised on the 1997 merger of Long Island Jewish Medical Center and North Shore Health System, two of the biggest hospitals on New York's Long Island, Katz said. North Shore's chairman at the time was Saul Katz, who is Wilpon's brother-in- law and long-time business partner as well as David's father, the younger Katz said.

The two Katzes and Stamos set up Sterling Stamos in 2002, said Richard Auletta, a spokesman for the investment firm. Stamos, the Katzes and Wilpon are investors in the firm, he said.

Wilpon, 70, and the elder Katz founded Sterling Equities in 1972 and have since developed more than 17 million square feet of commercial property, 45,000 residential units, 8.5 million square feet of retail property and three sports complexes, according to the company's Web site. Sterling Equities bought a partnership interest in the Mets baseball team in 1980 and became full owner in 2002.

Buying Sprees

Hedge funds, usually aimed at insurance companies, pension funds and individuals with at least $1 million, are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in any profits they earn. Clients of hedge funds typically pay fees of about 2 percent of assets and 20 percent of investment profits.

New York-based Morgan Stanley, led by CEO John Mack, has investments in Oxhead Capital Management LLC, Avenue Capital Group, FrontPoint Partners LLC, Lansdowne Partners LP and Brookville Capital Management. In March, Lehman Brothers bought 20 percent of D.E. Shaw & Co., the fourth-largest hedge-fund company.

Citigroup, the biggest U.S. financial-services company, agreed in April to buy hedge-fund manager Old Lane Partners LP and put 50-year-old co-founder Vikram Pandit in charge of the bank's private-equity, real estate and hedge-fund investments. Terms weren't disclosed.

Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .