News & Analysis

Morgan Stanley eyes hard-cap on secondary fund

The bank’s alternative investments group is set to beat its $600m target for its second investment vehicle to buy fund interests, and will likely wrap-up fundraising around the end of the year.

-

Morgan Stanley Alternative Investment Partners’ second global secondary fund is set to breach its $600 million target by the end of this month on its way to its hard-cap, according to a person with knowledge of the firm.

Morgan Stanley Global Secondary Opportunities Fund II will likely hit its $750 million hard-cap by year end, or shortly after, according to the person, adding the group has collected its target in just over six months of fundraising.

Morgan Stanley declined to comment.

Morgan Stanley AIP, part of the bank’s asset management arm, closed its debut secondary fund on $585 million in 2010. Prior to the dedicated vehicle, the alternative investment group had bought fund interests using capital from its global private equity fund of funds.

The group had been pursuing deals around special situations funds, which could include distressed debt, mezzanine, drug royalty funds, venture capital lending and energy, secondaries head John Wolak told Private Equity International at the time. It’s not clear if that strategy will hold true for the second fund.

Also, the team had found deal flow working with hedge funds that were unloading illiquid interests picked up during the heady years of the credit bubble, but no longer made sense to retain.

Morgan Stanley’s secondaries team has been fundraising along with several other secondary players, including Paul Capital, which is seeking $2 billion for its tenth fund, and Landmark Partners, which recently launched its 15thfund seeking $2.5 billion.

Private equity secondary activity has remained robust throughout the year as limited partners trim down their portfolios, reducing the number of manager relationships, or scale down their private equity exposure because of regulations.

However, the traditional slowdown of activity over the summer has not yet picked back up, which could signal the market will not ultimately move beyond last year’s total deal volume, around $25 billion, making it the busiest ever year for secondaries.