Kurt van Kuller, a muni market veteran, recently left Merrill Lynch & Co., where he was the head of municipal research, to join the hedge fund 1861 Capital Management LLC as an assistant portfolio manager. Van Kuller will help equip the fund to invest more in housing bonds using a municipal bond arbitrage strategy. The growing presence of hedge funds in the municipal market place is continuing to change the industry as van Kuller, who is widely recognized for his research in the housing sector, makes the move. He started with the fund yesterday. “The hiring of Kurt allows us to expand into other sectors of the $2.4 trillion municipal bond market, such as housing bonds,” said John Lee, managing member of the fund. Lee went on to say that the fund doesn’t have significant housing bond investments right now but that the bonds “offer an attractive opportunity in the market and it is a natural step for us to hire the preeminent guy in the space.” Van Kuller said his role at 1861 will involve helping the fund delve into the complex world of housing bonds, which because of their relation to the mortgage market often face significant prepayments and other issues that have less impact in other muni market sectors. “It is a sector where there is still such inefficiency in pricing and a sophisticated investor can still find extra value through research and astute selection,” van Kuller said. Housing issuers sold some $11.13 billion of debt through May, down only 0.5% from 2006 levels, according to Thomson Financial. Last year was a record year for the sector, as $30.54 billion of bonds were issued through 955 issues, the highest volume of the last five years. Van Kuller’s departure is significant for Merrill, which also lost researcher Ying Chen Li this year. Known in the past for having one of the largest municipal research groups on Wall Street, Merrill’s position as a premier source of municipal research has become vulnerable, said one source familiar with the situation. Li became head of JPMorgan’s municipal research and strategy team. Merrill spokeswoman Carrien Gray declined to comment on van Kuller’s move or changes being made in the research group. 1861 was founded in 2003 by former Merrill market strategist Evan Lamp, along with John Lee and Jed McCarthy, a co-founder of the firm that is now Prager, Sealy & Co.
