In an earnings conference call, Marsh & McLennan chief executive officer Michael Cherkasky confirmed rumors that the MMC Capital private equity unit would be spun off.
“We have signed a letter of intent to spin off MMC Capital to the team of employees at MMC Capital, led by Charles Davis,” Cherkasky said. Davis is the chief executive officer of the private equity unit, which runs the $3 billion (€2.3 billion) Trident Funds operation.
According to Cherkasky, the New York-based insurance broker will continue to be the largest investor with MMC Capital, but will have no direct ownership, involvement in investment decisions or input into company management.
He said the move would offset conflict-of-interest charges, adding that he hoped that the transaction would be closed “quickly”. Late last year, Marsh announced that the Securities and Exchange Commission had requested information on “related-party transactions” between Marsh and its MMC Capital subsidiary.
News reports said that the problems predate Cherkasky’s leadership. It was also reported that both Davis and ousted CEO Jeffrey Greenberg had financial stakes in the fund. At the time, Marsh said it would fully cooperate with the SEC investigation.
Over the summer of 2004, MMC Capital raised $1.1 billion in commitments for its third fund, Trident III, which invest in insurance, employee benefits and financial services industries. Since 1994, MMC Capital has raised more than $3 billion.
The announcement comes at a troubled time for the insurance company. Also discussed in the call was the prospect of cutting an additional 2,500 jobs, halved dividends and a fourth-quarter loss of $676 million.
In October, New York Attorney General Eliot Spitzer filed a civil lawsuit against the financial services company, accusing Marsh’s insurance brokerage unit of rigging insurance bids.