June 19, 2014
Photo: Neff Connor (CC BY 2.0)Photo: Neff Connor (CC BY 2.0)

In late 2013, after Walton Street Real Estate Fund VII had already been on the market for two years and was far short of its $2 billion target, Merrill Lynch Alternative Investments formed a vehicle called Walton Street VII Realty Trust.[i]

The Bank of America Merrill Lynch vehicle had raised $36.7 million from 60 investors as of February 14, 2014.[ii]

Did Bank of America Merrill Lynch disclose Walton Street’s fundraising, performance troubles to its clients?

Walton Street Real Estate Fund VII was not exactly a highly sought after real estate vehicle at the time Bank of America Merrill Lynch created its Walton Street VII Realty Trust vehicle.

WSC-ranking

Only 4 of the 19 public pension funds that had invested in Walton Street’s previous fund (Fund VI) re-upped with Fund VII based on publicly available information.

Three of Walton Street’s last four funds (Fund IV, Fund V, Mexico Fund I) were underperforming their peers as of September 2013 according to data provider Preqin Ltd.  None of Walton Street’s post-2000 vintage funds ranked in the first quartile.[iii]

In mid 2012, Walton Street Capital had handed its largest investment ever, the $2.8 billion CalWest Industrial Portfolio, over to lenders.[iv]  Walton Street limited partners lost around half of their investment in the deal.[v]

Of all the real estate funds on the market, why did Merrill Lynch choose Walton Street Fund VII?

What fees did Walton Street pay Bank of America Merrill Lynch to market Fund VII?

In its May 2014 SEC Form ADV, Walton Street Capital disclosed for the first time that it had used Bank of America Merrill Lynch to market Fund VII.

The Form D for its Walton Street VII Realty Trust notes that Merrill Lynch Alternative Investments LLC “is entitled to receive a semi-annual administration fee in an amount equal to a specified percentage of investors’ commitments or capital account balances.”[vi]

In addition, BAML’s brokerage arm, Merrill Lynch, Pierce, Fenner & Smith, “receives commissions or similar sales compensation equal to a percentage of the commitment made by each investor directly from such investor.”[vii]

Did Bank of America Merrill Lynch steer clients to Walton Street Real Estate Fund VII solely because it felt it was a good investment?



[i] Walton Street VII Realty Trust SEC Form D, Feb 14, 2014.

[ii] Walton Street VII Realty Trust SEC Form D, Feb 14, 2014.

[iii] Preqin.com, accessed Apr 1, 2014.

[v] Walton Street Fund V quarterly report, 4Q12.

[vi] Walton Street VII Realty Trust SEC Form D, Feb 14, 2014.

[vii] Walton Street VII Realty Trust SEC Form D, Feb 14, 2014.

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