FrontPoint In Management Buyout, Morgan Stanley To Keep Stake

Oct 20 2010 | 1:10pm ET

Morgan Stanley will spin-off its FrontPoint Partners hedge fund only four years after buying the $7 billion firm.

FrontPoint’s top executives and portfolio managers struck a deal on the management buyout of the Greenwich, Conn.-based fund. Morgan Stanley Investment Management is keeping a minority stake in the firm following the close of the transaction, expected by the end of the year.

Terms of the deal were not disclosed, and it is unclear how large a stake Morgan Stanley is retaining. Earlier reports indicated that the firm might hold on to between 20% and 25% of FrontPoint for at least five years and that it hoped its share of the hedge fund’s profits would help it recoup the $400 million it paid for FrontPoint in 2006.

Morgan Stanley decided to spin-off FrontPoint in order to come into compliance with the newly-enacted Volcker rule, which strictly limits banks’ alternative investments activities. For its part, FrontPoint’s executives, led by co-CEOs Daniel Waters and Michael Kelly, have been pushing for a management buyout since at least January.

“During the last four years we have continued to expand our investment capabilities, assets under management and investor base," Waters said. "We have worked very closely with MSIM's senior management on restructuring the FrontPoint relationship with Morgan Stanley to ensure that FrontPoint is best positioned to continue to deliver returns for our investors.”


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