MSIM Takes 18% Stake In Hedge Fund

Oct 30 2006 | 10:59am ET

Morgan Stanley Investment Management has bought a minority stake in New York-based hedge fund Avenue Capital Group. MSIM will reportedly pay $280 million for 18% of Avenue.

Under the arrangement with MSIM, Avenue will remain an independent firm and continue to be led by its current management team, which includes founder Marc Lasry, formerly a manager at Amroc Investments and Acadia Partners.

MSIM is just the latest in a series of large investment banks to beef up their asset management units through acquisitions of hedge fund firms.

Earlier this month, Merrill Lynch took a small stake in alternative asset manager DiMaio Ahmad Capital, which manages approximately $2 billion.

While the trend for big name banks to take ownership positions in hedge fund firms continues, some experts say that investors are paying the price. Speaking on a panel at the MARHedge Conference in Bermuda last week, one portfolio manager who runs a $1.3 billion family office said that this type of deal, “is wonderful for the hedge funds, but bad for
the investors.”

Avenue Capital, which specializes in buying distressed debt, has approximately $12 billion in assets under management.

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