BlackRock deciding on Merrill’s bond teams

NEW YORK — BlackRock Inc. will retain more Merrill Lynch Investment Managers' fixed-income professionals than insiders predicted when the firms complete their merger at the end of this quarter, sources say.

MLIM's municipal bond and stable-value teams will move to BlackRock in October, the sources said, while members of the MLIM global bond, distressed debt, local currency, corporate cash and preferred stock teams will be integrated into existing BlackRock strategies.

The sources added that about 80% of the taxable bond team will likely not join BlackRock once the acquisition is complete. Also, Kevin McKenna, managing director and head of fixed income in the Americas for MLIM, resigned.

Barbara Novick, vice chairman and managing director at BlackRock, did not comment on specific changes, but said that BlackRock's approach to integrating the units "since the beginning has always been to create one fixed-income team that represents the best both firms have to offer."

"We've had the challenge of having many good people on both sides," she added. "This is not about eliminating positions, it's about creating the best single operation."

She said the combined fixed-income teams will continue to report to BlackRock's Keith Anderson, global chief investment officer of fixed income, and Scott Amero, managing director and co-head of fixed income.

From the MLIM side, portfolio managers Robert Dimella and John Loffredo will head the combined firm's municipal teams, which will have roughly $50 billion in assets after the merger.

"These changes makes sense given the track records of some of the Merrill teams," said Arijit Dutta, analyst at Morningstar Inc., Chicago.

MLIM's municipal bond and stable-value strategies have posted strong performance in recent years, a factor that likely played into BlackRock's decision to retain those teams, added Mr. Dutta.

The MLIM stable value strategy, for example, outperformed the Lehman Aggregate Bond index by 5.51 percentage points for the year ended June 30; 1.62 percentage points for the two-year period; and 2.45 points over three years, according to eVestment Alliance, Marietta, Ga. (Performance for longer than a year is annualized.)

Merrill's taxable fixed-income strategies, which its website said had a combined $24.5 billion in assets as of March 31, include core, low duration and high yield. The strategies did not have a significant institutional client base, sources said.

"If you look at some of the strategies, like core fixed income, that's really BlackRock's bread and butter," said one source, who spoke on the condition of anonymity. "The Merrill team did put up some nice numbers, but I'm not surprised to see that these teams will be dissolved."

The MLIM core bond strategy, which had roughly $5.6 billion in assets, outperformed the Lehman Aggregate as well. According to the eVestment Alliance database, that strategy outperformed the index by 38 basis points for the year ended June 30; 39 basis points for the two years; 58 basis points for the three years; 57 basis points for four years; and 42 basis points for five years.

The BlackRock core bond strategy, with roughly $80 billion in assets, outperformed the Lehman Aggregate by 84 basis points for the year ended June 30; 44 basis points for the two years; 42 basis points for three years; 46 basis points for four years; and 41 basis points for the five-year period, eVestment Alliance data showed.

Ms. Novick said BlackRock will add some specialty taxable capabilities from MLIM, as well as a good deal of local currency resources in the U.K. and Japan.