Merrill Lynch has dropped plans to raise a third-party real estate fund, coinciding with the departure of the head of its real estate fund business.

The bank will continue to invest in real estate but from its balance sheet, rather than by raising capital from external investors, according to sources. The move follows the restructuring of the global markets business in August and the departure of Tom Saylak. Merrill hired Saylak in 2004 to head its real estate private equity business and raise a private equity fund to compete with competitors such as Citigroup, Morgan Stanley and Lehman Brothers. However, he left last month after Dow Kim, co-president of global markets, and Osman Semerci, head of the bank's fixed-income, currencies and commodities unit, decided against a third-party fund. Lauren Smith, an analyst at Keefe, Bruyette & Woods, said: "For the time being, the focus is on using the firm's capital versus third-party funds, where they believe they can invest capital faster and have more flexibility in its investment decisions." Saylak has not indicated whether he plans a new venture. Merrill Lynch declined to comment.