NEW YORK — Morgan Stanley Investment Management's three deals in three days might just be a record for an asset management firm.
On successive days starting Oct. 30, New York-based MSIM announced it was taking minority stakes in two hedge fund managers — Avenue Capital Group, New York, and Lansdowne Partners Ltd., London — and was acquiring outright FrontPoint Partners LLC, a hedge fund manager based in Greenwich, Conn.
While none of the parties to the three deals would discuss terms, based on information from people close to each deal, Morgan Stanley's acquisition price tag for the week was close to $800 million.
That might seem like a lot for any firm, but the deals were part of the fulfillment of a promise Morgan Stanley Investment President and Chief Operating Officer Owen Thomas made late last year to pump up the firm's alternative investment firepower.
In an interview last December, shortly after being named president, Mr. Thomas said alternative investments — including hedge funds and funds of funds, as well as private equity — were the first area MSIM would concentrate on growing (Pensions & Investments, Dec. 26).
Alternative investments came first in MSIM's growth plans because of scale, Mr. Thomas said in that interview. With $18 billion, or 4% of total assets, invested in alternatives as of Aug. 31, 2005, MSIM trailed its peers on Wall Street.
As of Aug. 31, 2006, alternative investments were up to $20 billion but were still stuck at 4% of the firm's $448 billion under management. FrontPoint will increase MSIM's alternatives pot by $5.5 billion when the deal is completed in December, subject to regulatory approval.
MSIM is not only acquiring FrontPoint Partners: A number of Frontpoint's senior executives are taking leadership roles within MSIM.
Gil Caffray, FrontPoint managing partner, will become vice chairman of MSIM; he will remain portfolio manager of the FrontPoint Multistrategy Fund. Michael Kelly, partner and FrontPoint's head of manager selection, will become chief investment officer 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 chief operating officer, 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, said Andrea Slattery, an MSIM spokeswoman. Ms. Pace is assuming the COO position from Mr. Thomas, who remains MSIM's president, and Mr. Lev replaces Barry Fink, who will become an adviser to MSIM.
Two prominent FrontPoint executives are not joining MSIM: FrontPoint Chairman Philip Duff will become a consultant to Morgan Stanley, "working for (Morgan Stanley Chairman) John Mack on firm strategy," according to a news release. 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 for comment.
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.
Eleven investment teams manage 21 hedge fund strategies, all of which will be retained and offered to MSIM clients for investment, Ms. Slattery said.
FrontPoint will be fully merged into MSIM, although the FrontPoint brand name will be retained for the hedge funds, Mr. Caffray said. He stressed that FrontPoint's senior executives and investment teams received new incentives to remain with the firm and will continue to manage their respective strategies from their existing offices. "The key word is continuity," Mr. Caffray said, noting 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 an MSIM news release.
