Morgan Stanley to Spin Off Private-Equity Unit

Morgan Stanley, the second-biggest securities firm by capital, is spinning off Morgan Stanley Capital Partners, with $3.5 billion of private equity investments, and is ending plans to raise a new fund.

Howard Hoffen, who has run the private-equity division for the last three years and has been at the firm since 1985, will run the new entity, which has yet to be named. Morgan Stanley will continue to be a general partner and a limited partner in the existing funds, he said.

The spinoff coincides with Morgan Stanley Capital Partners’ decision to end plans to raise $3 billion for a new fund. Private-equity funds tend to have volatile quarterly results that deter some investors in public companies, said Brian Horey, principal at Equity Growth Management in New York.

“Investors are most interested in buying a reliable stream of earnings,” Horey said. “These kinds of businesses can produce very lumpy earnings that don’t fit that profile. The more typical sales, trading and investment banking model is much more consistent and predictable.”

Morgan Stanley shares rose 9 cents to $60.52 on the New York Stock Exchange.

Morgan Stanley will retain 100% of its general and limited partnership stakes in the private equity investments. The firm will continue to be listed as the advisor of the funds. Hoffen’s new company will be a sub-advisor.