Bank plans $1b private equity fund in Boston
Bank of America Corp. has filed papers to raise a private equity fund of up to $1 billion, the latest move by a major bank hoping to channel money from wealthy clients into the sector.
The Charlotte, N.C.-based bank plans to sell securities under the name ``BA Private Equity Direct, LP" run from its Boston office at 100 Federal St., according to an Aug. 9 filing with the Securities and Exchange Commission.
A bank spokesman, Jon Goldstein, said the bank couldn't discuss details because of rules that restrict it from commenting on private funds. But the filing indicates it plans to raise up to $1 billion to invest in ``private investments," with a minimum of $500,000 that can be invested by any individual.
Those figures sound significant but they would still make the bank's efforts modest in the context of Boston's booming private equity sector. Firms like Thomas H. Lee Partners, TA Associates, and Bain Capital have raised billions from endowments, pension funds, and other institutional investors looking for higher returns than they can generally get investing in traditional publicly traded stocks.
Instead, the private equity investments tend to go to medium-sized companies, or to buyout firms like Bain and Lee. Last year, for instance, the two Boston firms participated in the recent $2.4 billion buyout of Dunkin' Donuts parent Dunkin' Brands Inc. of Canton.
Other banks also are setting up private equity funds including Citigroup Inc. and Credit Suisse Group.
Peter M. Rosenblum, a partner at the law firm of Foley Hoag LLP specializing in private equity issues, said wealthier clients wants access to the funds.
``There's a perception that returns in the public capital markets haven't been as robust as returns in the private equity space, and I think there's a feeling the banks' customers don't want to be left out of that arena," he said.
Banks haven't had an easy time getting access to the best-known private funds, however, Rosenblum said. ``The problem is, most of the top-tier private equity funds already have established groups of investors on whom they can rely for money," he said.
Bank of America's intentions represent something of a rejuvenation for its direct investing operations in Boston. One of its predecessor banks, BankBoston Corp. once oversaw as much as $4.4 billion in venture capital investments under its Banc Boston Capital brand. But a later owner, FleetBoston Financial Corp., trimmed staff and investments as the technology stock boom eased.
Bank of America's filing was first reported yesterday by Bloomberg News. In general, banks are drawn to private equity by the fee income they can generate, said Walter G. Kortschak, Palo Alto, Calif.-based managing partner of Summit Partners, which runs private equity and venture capital funds and has large offices in Boston and London. ``The banks are positioning this as diversification for their high net worth clients," he said.
Private equity funds may raise $300 billion this year, according to Private Equity Intelligence.
Blackstone Group LP last month raised $15.6 billion for the world's biggest buyout fund. US buyout funds produced average annual returns of 13.3 percent over the past two decades, compared with 11 percent for the Standard & Poor's 500 index, according to Thomson Financial and the National Venture Capital Association.
Bank of America previously has raised $700 million to $800 million to invest in other private equity funds since 1998, said Nick Arnott, a managing director at Private Equity Intelligence Ltd., a London research company that tracks fund-raising.
Ross Kerber can be reached at kerber@globe.com. Material from Bloomberg News was used in this report. 
