One theory on the extinction of dinosaurs is that the Earth’s atmosphere became uninhabitable after a massive meteorite hit the planet. Similarly, for the giant investment banks, the meteors of the dot-com fallout are still fueling their exodus from private equity.
The most recent financial behemoth being chased from the dusty fray is Morgan Stanley (NYSE: MWD). The New York-based firm announced Feb. 26 that it was spinning out Morgan Stanley Capital Partners.
Howard Hoffen, a managing director with the firm’s private equity unit, will head the new independent firm, which will be owned by current investment professionals of the group. The new group will manage Morgan Stanley’s $3.5 billion in private equity.
Morgan Stanley stopped short of getting out of private equity entirely and said it will continue to operate its real estate investment vehicles and “will actively pursue additional principal investing opportunities.”
However, Morgan Stanley is still in the private equity game. It plans to remain a limited partner in the new group’s upcoming fund, which reportedly has a goal of $3 billion.
A spokesman for the new independent firm declined comment.
Morgan Stanley Capital Partners invested $7 billion into a variety of private equity deals throughout its 18-year history and produced a 34% gross and 23% net IRR, according to a statement released by Morgan Stanley.
The announcement follows other large financial institutions in abandoning or sharply reducing its exposure to private equity.
J.P. Morgan Chase, Abbey National and Deutsche Bank have all exited or substantially cut back their involvement in private equity.