Morgan Stanley To Spin-Off FrontPoint

Aug 3 2010 | 12:01pm ET

The first casualty of the newly-enacted Volcker rule is Morgan Stanley’s FrontPoint Partners. The banking giant plans to spin-off the hedge fund, which it bought four years ago, within the next three months.

Greenwich, Conn.-based FrontPoint, which has about $7 billion in assets under management, is interviewing candidates for top executive positions in the newly-independent firm, CNBC reports, while telling others that they are likely to be laid off after the spin-off. It is not clear which FrontPoint executives and portfolio managers will get a stake in the firm, or how much they’ll have to pay Morgan Stanley for it. FrontPoint’s leaders have been mulling a management buyout since at least January.

The move makes Morgan Stanley the first major bank to react to the newly-enacted Dodd-Frank financial regulation reforms, which restrict banks’ alternative investment activities. Other banks are said to be considering similar moves, although it is not at all clear that they are required to do so under the new law.

What Morgan Stanley plans to do with its minority stakes in three hedge funds is also unclear. The bank owns pieces of Avenue Capital Group, Lansdowne Partners and Traxis Partners.

Morgan Stanley had already begun to separate the operations of FrontPoint from its own Morgan Stanley Investment Management division, with FrontPoint co-heads Mike Kelly and Dan Waters leaving their posts at the asset management business after former Merrill Lynch executive took over in December.


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