Morgan Stanley plans return to asset class

The US bank remains deliberately vague on the details, but in an interview its chief financial officer confirmed plans to reverse its 2004 decision to abandon private equity investing.

Morgan Stanley, the largest US investment bank, is looking to return to private equity investing, according to David Sidwell, its chief financial officer, reported in an interview yesterday.
Sidwell told Reuters, a news agency:  “We continue to make progress on putting risk at work by having an infrastructure fund and a private equity fund.” He declined to give details of its fundraising targets or timings, citing regulatory rules that prevent firms from promoting investment funds before they are closed, Reuters said.

Sidwell said the bank was pursuing various product and business development initiatives and would hire executives both externally and internally.

Mack’s arrival prompted rethink

Morgan Stanley returned to principal investing for financial gains and for strategic purposes after John Mack was named chief executive in June. More recently the firm has studied building a private equity practice that also invests third-party money.

Morgan’s principal investing business, housed within Morgan’s institutional securities division, has invested $1.3 billion out of a projected $2.5 billion, Sidwell said.

It let its private equity business walk out the door in 2004. The spin-out now trades independently as Metalmark Capital. It continues to manage, under a a subadvisory agreement, Morgan Stanley Capital Partners III, a $1.9 billion private equity investment fund, and Morgan Stanley Dean Witter Capital Partners IV, a $3.3 billion private equity investment fund.

Between 1985 and 2004, Morgan Stanley Capital Partners sponsored four private equity funds that invested over $5.8 billion of private equity capital in over 80 companies.

The bank posted record third quarter net income of $1.85 billion yesterday, revealing a big jump in its lending to leveraged buyouts with loans and commitments to non-investment grade borrowers up to $23.8 billion compared with $5.8 billion a year ago.