15/02/2012 Author: Tony Griffiths

Morgan Stanley to raise $1bn for two major hedge funds

Morgan Stanley is in the process of raising a combined total of roughly $1bn for US hedge fund firms SAC Capital Advisors and KLS Diversified Asset Management, HFMWeek can reveal.   

The two mandates, for around $500m each, are being undertaken by the bank’s New York-headquartered Capital Markets division, although the SAC deal, for the $14bn hedge fund giant’s new reinsurance venture, is a joint project with Barclays, unnamed sources said.

KLS, which has about $1.35bn in AuM, is seeking fresh capital for an existing multi-strategy fixed income vehicle. In both cases the capital-raising process is already underway and is likely to take a number of months to complete, the sources added.     

Stamford, Connecticut-based SAC, founded by hedge fund industry luminary Steve Cohen, made headlines in October 2011 with plans to launch SAC Re, a Bermuda-based reinsurance company that would focus on property and casualty liabilities.

At the time, it was reported that Cohen was seeking $500m for the new firm and that he planned to invest it all in SAC funds.  

Morgan Stanley’s capital-raising service is headed by industry veteran David Barrett. Capital-raising services for hedge funds are of mixed popularity with prime broking investment banks. According

to HFMWeek research, only Morgan Stanley and Credit Suisse offer both official capital raising and, separately, prime brokerage services.

Credit Suisse – whose capital-raising effort is run out of the US by Lesley Goldwasser’s Hedge Fund Strategic Services division – is looking to “expand” its offering and was “talking to a number of people about potentially doing so”, a source with knowledge of the bank’s plans told HFMWeek.

Although not in a formal capacity, the majority of investment banks with prime brokerage units will offer capital raising to hedge funds “in some form”, one hedge fund specialist at an investment bank said.

“Most capital introduction teams will probably have looked at this, as it could be a nice revenue source,” a second unnamed London-based prime brokerage professional added. “However, due to potential conflicts not many have decided to progress.”