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Morgan Stanley raises $1.5 bln for second infrastructure fund

Firm: Morgan Stanley

Fund: Morgan Stanley Infrastructure Partners II LP

Target: $4 billion, according to a report

Amount Raised: $1.5 billion

The investment bank disclosed $881 million raised for Morgan Stanley Infrastructure II LP from seven investors, as well as an additional $636 million from two investors in a parallel fund, Morgan Stanley Infrastructure Partners II-A LP. Aggregate capital raised in both funds as of June 30 totaled $1.52 billion, according to a notation in Form D filings from the bank.

The disclosures came as Morgan Stanley said its Morgan Stanley Private Equity Asia IV LP raised $1.7 billion, ahead of its target, according to a report by sister news service Reuters.

Morgan Stanley plans to raise $4 billion for its new infrastructure fund, according to a report by Bloomberg News. The fund’s 2006 vintage predecessor, Morgan Stanley Infrastructure Partners, beat its $3 billion target and raised $4 billion when it wrapped up in 2008.

Executives listed for Morgan Stanley Infrastructure Partners II include: John Veech, Thomas Gray, John Watt, Andrew Medvedev and Brian Park. Markus Hottenrott is chief investment officer and head of the infrastructure group, according to the bank’s website. Other senior executives include Mark McLean, head of Asia-Pacific, John Watt, head of asset management, Chris Koski, head of investment strategy, and Jim Wilmott, head of Europe.

Veech, a managing director at the bank, is head of Morgan Stanley infrastructure investing activities in the Americas. He told Bloomberg TV in 2012 that the firm invests for a longer hold period compared to conventional private equity funds, with an eight- to 10-year horizon. Investors are seeking predictable cash flows, some growth and inflation protection, he said.

A bank may sponsor a new private equity fund as long as it complies with the requirements under the Volcker Rule for organizing and offering it. The Volcker Rule, part of the 2010 Dodd-Frank financial reform law, includes a limitation of 3 percent of the ownership interest in the private equity fund, according to government guidelines.

Those rules may have caused some executives at the fund to depart from Morgan Stanley’s infrastructure unit because they require smaller stakes by insiders than in the past, and a decreased share of any gains. A report by Reuters noted in 2012 that Adil Rahmathulla, an executive director for investments in the Americas, and Gautam Bhandari, managing director and head of Morgan Stanley Infrastructure in Asia, departed. Both Bhandari and Rahmathulla now work as partners at New York-based I Squared Capital, according to their LinkedIn profiles and public statements from the firm.

Among deals by Morgan Stanley Infrastructure Partners, it paid an undisclosed sum in 2012 to increase its ownership stake to 100 percent of the common equity of Southern Star Central Corp, parent company of Southern Star Central Gas Pipeline. Morgan Stanley originally acquired a 40 percent economic stake in Southern Star in 2010.

Other holdings by the unit include Madrileña Red de Gas, which is the second-largest natural gas distributor in Madrid; Chicago Parking Meters; Medical Area Total Energy Plant and Affinity Water, the largest regulated water-only company in the U.K. by revenue, according to the firm’s website.

Meanwhile, Perry Offutt, who worked as head of infrastructure banking for the Americas at Morgan Stanley, will join Macquarie Group as a managing director at the bank’s infrastructure and real assets unit, according to a June 26 announcement. Offutt will be responsible for acquisitions and deal origination out of the bank’s New York office, effective Sept 2.

Morgan Stanley traces the start of its private equity investing to 1985. All told, Morgan Stanley Global Private Equity has invested $6.7 billion through five funds, across a spectrum of industries, according to the firm’s website.

New York-based Morgan Stanley, led by Chairman and CEO James Gorman, is following up with its first major private equity funds since the Volcker Rule led other banks to spin off their private equity arms.

A spokesperson for Morgan Stanley declined to comment. 

(This story has been updated to include the names of the current leadership at Morgan Stanley Infrastructure Partners and a no comment from the firm.)