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Morgan Stanley raises $1.4B for deals its rainmakers find

Morgan Stanley raised $1.4 billion, almost three times its initial target, for a new private investment fund that will source deals using its own investment bankers and wealth managers.

The fund was created to meet demand for private investments in the Volcker Rule era, said David Miller, head of private credit and equity at Morgan Stanley Investment Management. As much of two-thirds of the fund’s investments could come from within the bank’s capital-markets division, its wealth manager and asset manager.

“There’s been a lack of capital that can invest in these illiquid, longer-dated investments,” Miller said. “Bank balance sheets were shrinking, and hedge funds that were stepping in for a while to make these longer-term investments were stepping away.”

The North Haven Tactical Value Fund will seek deals of about $50 million to $200 million in private equity, debt or hybrid securities, Miller said. It will be led by longtime Morgan Stanley banker Thomas Cahill and Pedro Teixeira, who joined last year, and will use a strategy akin to Blackstone Group’s Tactical Opportunities Group, a larger fund that seeks to invest in private firms.

Morgan Stanley digital signage is displayed outside the company's headquarters in New York, U.S., on Thursday, July 12, 2018. Morgan Stanley is scheduled to release earnings figures on July 18. Photographer: Bess Adler/Bloomberg
Morgan Stanley digital signage is displayed outside the company's headquarters in New York, U.S., on Thursday, July 12, 2018. Morgan Stanley is scheduled to release earnings figures on July 18. Photographer: Bess Adler/Bloomberg

Morgan Stanley is among U.S. banks that curtailed using its own capital for deals since the Volcker Rule, trading restrictions that are part of the Dodd-Frank package of financial regulations, was enacted in the wake of the 2008 crisis. The firm’s rival, Goldman Sachs, has built up a merchant-banking unit also dedicated to private dealmaking.

There’s no shortage of private investment opportunities within the bank. Morgan Stanley’s capital-markets unit has raised funds in equity and debt markets for closely held firms such as Uber Technologies, and the bank went on to lead some of their public offerings. The firm’s wealth manager oversees $2.5 trillion, and its asset manager handles $471 billion.

Morgan Stanley will invest up to 3% of its own capital in the fund, in line with Volcker Rule guidelines. The business led by Miller, who also worked at Goldman’s special situations group and the U.S. Treasury Department, said last month that it raised $400 million for an eighth private-equity growth fund.

Morgan Stanley’s private-investment group is also looking to step in if capital markets become harder to access.

“This fund was made to perform in all cycles,” Miller said. “Part of the strategy is by design meant to be invested in turmoil, volatility or downturn. If capital is scarce, that is partly what the fund was designed for, to step in and fill that void.”