Conglomerates Losing Talent to Boutique Firms.

Top-line financial executives, frustrated with working for global conglomerates based elsewhere and eager to cash in on rich opportunities in Los Angeles, keep leaving their jobs to launch boutique firms. And in many cases, they are taking their clients with them.

They are being drawn by strong local demand for investment banking services among the small and medium-sized businesses often ignored by Merrill Lynch, Goldman Sachs & Co. and other blue-chip behemoths.

"If you're an organization with 30,000 people, what you're doing may not move the needle," said John Mack, Chief executive of Los Angeles-based USBX Inc., a one-year old mergers-and-acquisitions firm with 43 people. "You don't know that what you're doing is having an impact on the margin. You have less control of your destiny."

And those conditions can be intolerable for an entrepreneur.

"I think the difference between a big company vs. a smaller company is the entrepreneurial spirit," Mack said. "In a smaller company, you have more control on your destiny. You feel like you're building the culture, building the business and taking advantage of a new market opportunity."

Among those bolting is Sarah Ketterer, daughter of Hotchkis and Wiley co-founder John Hotchkis, who resigned this month from her money management job at Merrill Lynch to co-found with two colleagues a new investment firm, Causeway Capital Management LLC. Merrill Lynch bought Hotchkis and Wiley in 1996.

Sage Group, the year-old M&A firm that brokered the sale of Los Angeles' Earl Jean Inc. to New York-based Nautica Enterprises Inc. in late April, was founded by three former ING Barings executives, including Mark Vidergauz, now chief executive and managing director of the Sage Group.

While at ING, the three partners found a niche for merger and acquisitions services in the $50 million-to-$100 million transaction range -- a segment often ignored by the global financial services giants.

A similar scenario last year led to the formation of USBX, whose executives defected from Goldman Sachs, Newport Beach fixed-income management firm Pacific Investment Management Co. and Ullico Inc., a $1.8 billion investment firm managed by Union Labor Life Insurance Co.

Mack, the founder of Protection One Inc., a home security company that bought 200 companies during his 11-year tenure, saw lots of small businesses up for sale at discount prices, and others not up for sale but that should have been. He cited a dearth of financial professionals who can quickly and effectively assist smaller businesses with mergers and acquisitions.

Other forces are driving L.A. finance executives out of blue-chip firms. Many are tired of climbing the ropes within an organization based elsewhere. They find they can get immediately to the top by founding their own firm, said James Barth, senior fellow at the Milken Institute.

Sometimes it s a matter of wanting to have more influence, as was reportedly the case with Ketterer, who was unavailable for comment last week.

I can't speak for Sarah (Ketterer), but she was becoming part of a bigger and bigger system, Mack said. Hotchkis and Wiley for 20 years provided customized services and managed $5 billion to $20 billion. It had close working relationships with its clients and a good cultural fit. When it became part of Merrill Lynch, some of that was lost.

A spokesman for Ketterer said Merrill Lynch could not provide the same equity perks as that of a new investment firm. It also allowed her team to remain in place.

Blue-chip shrug

Merrill Lynch spokeswoman Christine Walton offered this assessment of the defections: I would say that the financial services industry has seen and will likely continue to see individuals leaving to begin their own firms, but we don t view it as a particularly new trend. Large companies have experienced a pretty steady level of workers who leave to try their hand at their own or a smaller business.

Merrill Lynch said its London-based portfolio manager, James MacMillan, will take over the $1.4 billion Mercury HW International Value fund formerly managed by Ketterer. New York-based Merrill Lynch eventually may sell the Los Angeles unit, which manages $10 billion in assets.