Navigate this market better. Subscribe for FREE stock alerts and information.

Thursday, October 9, 2014

INSIGHT-Morgan Stanley uses client cash to chase private equity profits, (NYSE: MS)

Morgan Stanley is embracing the financial reforms intended to curb its animal spirits to generate bigger profits. Unlike most of its rivals, Morgan Stanley has been building its private equity business using structures that are subject to the Volcker rule, which restricts the amount of money a bank and its employees can contribute to such funds. This, in turn, limits their profit-sharing and, some would argue, their alignment with investors' interests.For Morgan Stanley, the sixth biggest U.S. bank by assets, putting less capital into private equity funds makes sense, people familiar with the bank's strategy said. Under Chief Executive James Gorman, 56, managing clients' wealth has replaced businesses like bond trading and principal investing as the prime supplier of profits. Collecting steady fees without risking much money is more aligned with Gorman's goals than investing alongside clients with the potential of bigger rewards."The private equity business is the best business model in financial services, hands down," said Chris Kotowski, an analyst with Oppenheimer & Co, who covers banks and private equity firms. "People think of it as a risky business but it's not really. Come hell or high water, you're going to collect your base management fee."This year, Morgan Stanley has been tapping its network of institutional and individual investors to raise several new funds. In addition to a $1.7 billion Asia-focused private equity fund the bank closed in July, it's also trying to raise $4 billion for a global infrastructure fund, $2.5 billion for a global real estate fund, and $1 billion for a credit fund, according to people familiar with the matter.

Morgan Stanley is a global financial services company that, through its subsidiaries and affiliates, provides its products and services to a range of clients and customers, including corporations, governments, financial institutions and individuals. Shares of MS fell by 3.19% or $-1.1001/share to $33.40. In the past year, the shares have traded as low as $27.02 and as high as $36.44. On average, 9136330 shares of MS exchange hands on a given day and today's volume is recorded at 8520874.