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Merrills Goldsmith Quits for Hedge Fund

Date: Wednesday, February 13, 2008
Author: Bradley Keoun, Bloomberg.com

(Bloomberg) -- Merrill Lynch & Co.'s Graham Goldsmith, head of a team of traders and bankers who invest in distressed company debt, is leaving to join Strategic Value Partners LLC, the hedge fund run by former colleague Victor Khosla, three people familiar with the situation said.

Goldsmith, 40, made the decision to give up his post as head of corporate principal investments, and Merrill executives tried to keep him, said the people, who declined to be identified because the firm hasn't announced his departure. He has worked at the New York-based securities firm since July 1994, according to regulatory records. His group's investments included loans and bonds of financially weakened companies.

The departure reduces Merrill's senior trading ranks just as Chief Executive Officer John Thain is trying to bolster them. Thain, appointed last year after the ouster of Stan O'Neal, said in November that Merrill's trading business needed to ``add some senior management talent.'' In December, the firm hired Jeff Kronthal, a onetime bond-trading executive who was fired by previous management 17 months earlier, as a consultant.

Merrill's shares have tumbled 44 percent in the past year, dropping 9 cents to $51.48 today in New York Stock Exchange composite trading.

Goldsmith didn't return phone calls seeking comment. Jonathan Gasthalter, a spokesman for Greenwich, Connecticut- based Strategic Value who works for Sard Verbinnen & Co., declined to comment, as did Merrill spokeswoman Jessica Oppenheim.

Dynegy, Conseco

Khosla, who founded Strategic Value Partners in 2001, was a managing director at Merrill Lynch from 1993 to 1998, where he oversaw a unit that invested in distressed debt, according to a biography on the Web site of the Arab Bankers Association of North America. He broadened the unit beyond U.S. corporate debt to include real estate, and then expanded into Europe, Japan and Asia.

The group had about $2 billion of investments and included a team of about 40 analysts and traders when he left, according to the biography.

Greenwich, Connecticut-based Strategic Value has about $5 billion under management.

At Merrill, Goldsmith's group provided Raser Technologies Inc. with as much as $44 million of financing in January for a power plant that runs off underground steam. Earlier this decade, he signed off on loans to power producer Dynegy Inc., insurer Conseco Inc. and engineering contractor Foster Wheeler Ltd., regulatory filings show.

Lydon's Move

Goldsmith is at least the second former Merrill executive to join Khosla at Strategic Value Partners. In February 2007, Kevin Lydon, Credit Suisse Group's London-based co-head of distressed-debt investing in Europe, resigned to join the fund. Lydon was a managing director trading distressed loans at Merrill when he left for Credit Suisse in March 2005.

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 .