Morgan Stanley Mulling Future Of Hedge Fund Stakes

Nov 17 2010 | 2:00pm ET

The head of Morgan Stanley's asset management business reiterated that the bank may sell off its minority stakes in several hedge funds.

Gregory Fleming, who has been evaluating Morgan Stanley Investment Management's businesses since he was named president in February, said it was mulling its investments "with a goal to thoughtfully free up capital, balancing for commitments, timing and returns." He told the Bank of America Merrill Lynch Banking and Financial Services Conference that its stakes in hedge funds Avenue Capital Group, Lansdowne Partners and Traxis Partners "attract significant capital charges" under the newly-enacted Dodd-Frank financial reform law.

That law's version of the Volcker rule restricts banks' hedge fund and private equity investments to 3% of their Tier One capital.

Fleming said the performance, scalability and return on capital of the hedge fund stakes and other principal investments would help determine the direction Morgan Stanley takes.

The firm is set to add another minority hedge fund stake in the coming weeks when it spins off FrontPoint Partners, the hedge fund it acquired four years ago. Morgan Stanley plans to retain a stake in the newly-independent hedge fund for at least five years as it seeks to recoup the $400 million it paid for FrontPoint.


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