Morgan Stanley ‘Evaluating’ Hedge-Fund Investments

Date: Wednesday, February 3, 2010
Author: Christine Harper, Bloomberg

Morgan Stanley is “evaluating” its investments in hedge funds including FrontPoint Partners LLC and London-based Lansdowne Partners LP, Chief Executive Officer James Gorman said today at an investor conference.

“We’re evaluating our various hedge fund stakes and positions from FrontPoint to our positions in Avenue, Lansdowne, Traxis,” Gorman, 51, who succeeded John Mack as CEO at the start of this year, said today at an investor conference hosted by Morgan Stanley in New York. He didn’t specify what options the firm is considering in the evaluation

Under Mack, 65, who remains chairman, the firm acquired FrontPoint Partners and minority stakes in hedge-fund managers including Avenue Capital Group, Lansdowne Partners and Traxis Partners LLC in 2006 and 2007 as part of an effort to offer investors a larger choice of alternative investments.

Gorman listed “evaluating hedge-fund business” as part of the “key 2010 execution milestones” for the company’s asset- management division in a written presentation that accompanied his speech today. It was the second time that Gorman mentioned the hedge-fund stakes as being under review.

On Jan. 20, when the New York-based firm presented its fourth-quarter and full-year earnings, Gorman said that Greg Fleming, who is scheduled to start next week as the head of Morgan Stanley’s Investment Management division, will examine the company’s stakes in FrontPoint, Avenue, Lansdowne and Traxis.

Volcker Proposal

The next day President Barack Obama endorsed a proposal by former Federal Reserve Chairman Paul Volcker that would prohibit any commercial bank or large financial institution that contains a bank from owning, investing in, or sponsoring a private equity or hedge fund. Morgan Stanley, which converted from a broker- dealer into a financial holding company in Sept. 2008, is the sixth-biggest U.S. bank holding company by assets.

The Wall Street Journal reported last month, after the so- called Volcker Rule was endorsed by Obama, that managers of FrontPoint Partners may buy the unit from the bank, citing people familiar with the matter.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.