M Stanley buys into Lansdowne

M Stanley buys into Lansdowne

By Peter Thal Larsen in London

Published: November 2 2006 02:00 | Last updated: November 2 2006 02:00

Morgan Stanley yesterday made its third investment in a hedge fund in as many days when it bought a minority stake in Lansdowne Partners, the large London-based asset management group.

The investment bank, which is eager to expand the range of hedge fund investments it can offer to pension funds and wealthy individuals, bought a 19 per cent stake in Lansdowne.

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Morgan Stanley and Lansdowne did not disclose the value of the deal, but observers calculated that, based on similar transactions, Lansdowne's 16 partners would be likely to share at least $400m (£209m) as a result of the deal.

The move is the latest in a flurry of deals that has seen Morgan Stanley take control of FrontPoint, the US hedge fund, and snap up a minority stake in Avenue Capital, a hedge fund specialising in distressed debt.

Following the return of John Mack as chairman and chief executive, the investment bank pledged to expand its alternative asset management business, where it trails well behind rivals such as Goldman Sachs.

The recent flurry of deals also highlights the growing convergence between large investment banks and hedge funds as the business becomes increasingly institutionalised.

"As we continue developing our asset management franchise, we will continue to explore a wide range of opportunities that can bring innovative, high-performance products and services to our clients," said Owen Thomas, president and chief operating officer of Morgan Stanley Investment Management.

Lansdowne, founded in 1998 by Paul Ruddock, former head of the international business of Schroders, and Steven Heinz, who managed equities for Harvard Management Company, has grown quickly in the past two years and now manages funds worth about $12.5bn.

Investment bankers specialising in the sector said most hedge funds were currently valued at 15-20 per cent of assets under management, implying a valuation for the stake of $400m-$500m.

As a result of the deal, Morgan Stanley is expected to be able to offer pension funds and private clients access to Lansdowne's funds, though this is most likely to be the case with new products rather than established funds.

Since 1998, Lansdowne has added Stuart Roden and Peter Davies, who joined from Merrill Lynch in 2001, William de Winton, a former Morgan Stanley banking analyst, and Richard Davidson, previously Morgan Stanley's European equity strategist. It has also hired Arnab Banerji, formerly senior economic adviser to Tony Blair, prime minister.