Morgan Stanley PE group spins out

Yet another captive breaks free as the newly independent firm will also prepare to raise a new fund.

Financial services giant Morgan Stanley today announced its private equity arm, Morgan Stanley Capital Partners, will spin out to establish an independent firm, led by managing director Howard Hoffen.


The private equity firm will continue to manage the Morgan Stanley Capital Partners funds as a subadvisor to the bank. According to a press release, Morgan Stanley “will continue as general partner for the Capital Partners funds and retain its limited partner interest.” In 1999, Morgan Stanley Capital Partners IV closed on $3.2 billion (€2.57 billion).


Morgan Stanley Capital Partners employs about 50 professionals, according to a source. The parent company will continue to keep in house a number of other principal investment programmes, including real estate, venture capital, emerging markets, distressed and commodities funds.


According to press reports, the firm is preparing to begin fundraising for a new fund that will have a target of $3 billion.


Hoffen has been with Morgan Stanley since 1985 and head of the private equity group for three years. In a statement, he said, “Our progression to independence is a logical step in the evolution of the Capital Partners business model.”


Morgan Stanley has had difficulty retaining private equity talent. Hoffen was named head of the firm in 2001 after Alan Goldberg quit to form his own private equity firm, now called Lindsay Goldberg & Bessemer. Three years earlier, private equity co-head Frank Sica left to join Soros Private Equity.


According to a Morgan Stanley statement, the private equity arm has produced 34 percent gross IRR and 23 percent net IRR “since inception.” The statement says the Capital Partners business has an 18-year history.


The New York-based group has been especially active internationally. Morgan Stanley Capital Partners’ most recent investment saw it take a 20 percent stake in London-based luxury retailer A&G Group for an undisclosed amount.


In 2002, the firm bought a battery technology unit from UK engineering group Invensys for $505 million.


The same year, Morgan Stanley Capital Partners acquired the methylamines and derivatives division of Belgian drug and chemical maker UCB for €120 million ($118 million).


Energy has been a focus. Last July, the firm bought oil exploration and production assets from Indiana-based NiSource for $330 million. Several months earlier, the firm bought an ethanol manufacturing division of natural gas company Williams for $75 million.


Major financial institutions, particularly those based in Europe, have in recent years shed in-house private equity operations due to concerns over their effects on earnings, stricter capital reserves requirements as well as perceived and real conflicts of interest.


In a recent example of this phenomenon, last year MidOcean Partners broke free of Deutsche Bank.