Morgan Stanley Investment Management, in its second acquisition in two days, will acquire hedge fund manager FrontPoint Partners. Officials from both firms declined to disclose terms, although a source with knowledge of the deal said the purchase price was close to $400 million. The deal is expected to close in December, subject to regulatory approval, according to a statement from MSIM. FrontPoint managed $5.5 billion as of Oct. 1 in 21 hedge fund strategies managed by 11 teams.
Andrea Slattery, a MSIM spokeswoman, said FrontPoint will be fully merged into MSIM, although the FrontPoint brand name will be retained for the hedge funds. All but two senior FrontPoint employees will remain with the firm, Gil Caffray, FrontPoint managing partner, said in an interview. FrontPoint Chairman Philip Duff will become a consultant to Morgan Stanley, "working for John Mack (chairman of Morgan Stanley) on firm strategy," according to the statement. Paul Ghaffari, a FrontPoint founding partner, is leaving the firm to start his own hedge fund, confirmed Mr. Caffray. Mr. Ghaffari could not be reached by press time.
FrontPoint's senior executives and investment teams received new incentives to remain with the firm and will continue to manage their respective strategies, said Mr. Caffray. "The key word is continuity," he said, noting that there will be no disruption to existing client investments. FrontPoint's senior executives and investment staff "will also invest a significant portion of the proceeds from this deal in the FrontPoint funds," according to the MSIM statement.
FrontPoint executives are assuming leadership roles with MSIM, according to the statement. Mr. Caffray will become vice chairman and will remain portfolio manager of the FrontPoint Multistrategy Fund. Michael Kelly, partner and FrontPoint's head of manager selection, will become CIO and head of MSIM's absolute return strategies group. Arthur Lev, partner and FrontPoint's general counsel, will assume the same position within MSIM. Joanne Pace, partner and FrontPoint's COO, will assume the same position in MSIM. Daniel Waters, partner and head of FrontPoint's client advisory group, will become head of U.S. institutional distribution. Messrs. Caffray, Kelly and Waters are filling vacant positions within MSIM, Ms. Slattery said. Ms. Pace is assuming the COO position from Owen Thomas, who remains MSIM's president, and Mr. Lev replaces Barry Fink, who will become an adviser to MSIM.