Bank of America bails on buyouts biz

April 20, 2011, 5:23 PM UTC

Bank of America (BAC) is continuing its exit from the world of private equity investing. Fortune has obtained the memo, written by BAML Capital Partners boss Jim Forbes:

Bank of America has made the strategic decision to limit new investment activity in GPI and focus our team’s efforts on portfolio monetization. This important goal is one we have executed on very well over the past 18 months, and I attribute that to the talent across our team and the strong asset quality across our portfolios. In the first quarter of 2011 alone, GPI returned over $2 billion of capital to the company through strategic asset sales and receipt of IPO and dividend distributions. That’s on top of $5 billion in capital we returned to the company in 2010.

As part of this strategy, Bank of America has reached an agreement with senior leaders of BAML Capital Partners to separate from the bank and form an independent private equity management company. Bank of America will continue to own the investment portfolio, valued at approximately $5 billion at the end of 2010. The new firm will be paid a fee to manage the portfolio and monetize the assets. We expect to complete the transaction before the end of June and the BAML Capital Partners team will re-launch under a new name. In addition to managing the Bank of America portfolio, the team has indicated their intent to raise third party capital for new investments.

We believe this is a great opportunity for the employees of BAML Capital Partners to continue their investment strategy while monetizing the bank’s portfolio. They are a very talented group of private equity investors and I wish them great success in their new venture.

This isn’t a terribly surprising development. BoA first signaled its dissatisfaction with the asset class last spring, when it sold a $1.9 billion portfolio of third-party private equity fund positions to AXA Private Equity. At the time, a source said that BoA was highly unlikely to make new LP commitments, although added that the decision was unrelated to Volcker Rule considerations.

Now the direct investment group also is leaving, per Forbes’ memo. Sounds like a stapled secondary will be the exit strategy. Apparently the big return from HCA (HCA) couldn’t convince BoA boss Brian Moynihan to keep it in house.

BoA also has a fund-of-funds called BAML Capital Access Funds, which manages money for some big pensions like CalPERS, CalSTRS and New York Common Retirement Fund. No word on if that’s also spinning out, but if I had to guess…