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His firm has skin in the game

August 05, 2008|Tom Petruno

Ken Moelis' model for his new investment bank is the so-called merchant bank.

All investment banks provide financial advice to companies for a fee, but a merchant bank also has a pool of capital to invest in corporate deals -- for example, in the case of a company that's going private in a leveraged buyout led by management.

Goldman, Sachs & Co. is a major player in the merchant-banking arena. Moelis saw the potential of the model first-hand in his 10 years at Donaldson, Lufkin & Jenrette Securities, which developed a respected merchant-banking business.

"I think the DLJ model is a really good one to base off," Moelis said. Strategic advice, he said, was the company's primary business, but "every once in a while the client will say, 'Why don't you do this [deal] with us?' "

Typically, a merchant bank creates a series of funds that can be tapped as deal-financing opportunities arise. Big investors provide the bulk of the capital, and the bank and its executives also participate and decide how to put the funds to work.

Moelis & Co. is believed to have lined up about $2 billion in commitments from institutional investors for a private-equity fund that would finance the firm's merchant-banking investments.

The veteran banker wouldn't confirm the dollar amount or discuss his plans for the investment fund other than to say, "It was great to have people who believed in you enough to get you going."

-- Tom Petruno

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