BofA to Sell Alternative Operations With $20 Billion to ICapital

(Bloomberg) -- Bank of America Corp. agreed to sell businesses that administer alternative investment feeder funds to iCapital Network, a financial-technology firm led by a former Goldman Sachs Group Inc. banker.

The operations for feeder funds, which pool client money to invest in hedge funds and private equity, handle about $20 billion in client holdings, boosting the assets on iCapital’s platform by more than four times, iCapital Network said Tuesday in a statement. Terms of the deal, expected to close in the first half of next year, weren’t disclosed.

Bank of America Chief Executive Officer Brian Moynihan has worked to streamline the bank since the financial crisis, and the iCapital deal will help it further simplify operations. New York-based iCapital, founded in 2013 and run by former Goldman technology banker Lawrence Calcano, has sought to give high net worth individuals access to more alternative funds that were typically limited to institutional investors.

“Partnering with them will allow us to do what we do in a more efficient way,” Nancy Fahmy, head of alternative investments and specialty asset management at Bank of America, said in an interview. “We view iCapital as a leading partner in this space, really providing the infrastructure and architecture across the AI industry.”

The company will use its technology platform to automate some aspects of fund administration, and will offer positions to 22 Bank of America employees who currently work in operations for those alternative investment feeder funds. Bank of America will still be involved in sourcing and distributing those funds, and clients will remain as Merrill Lynch and U.S. Trust customers.

About a year ago, the bank started evaluating the business, according to Fahmy. The bank did extensive due diligence when it started talking with iCapital, even asking its existing partners about the experience, to better understand how the fintech firm worked.

The transaction deepens iCapital’s relationship with Wall Street. The company bought a U.S. private equity access fund platform from Deutsche Bank AG’s asset manager last year, and has partnered with companies including JPMorgan Chase & Co. and a Massachusetts Mutual Life Insurance Co. asset manager, Barings. The deal with Bank of America helps affirm iCapital’s strategy, according to Calcano, its CEO.

“Making investments in these assets is more complicated and a little more challenging than for typical stocks, bonds, etc., and so we have been working on trying to build the industry architecture” to make it easier for investors to allocate to the asset class, he said in an interview.

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