long courtship of FrontPoint Partners ended Tuesday with the Wall Street investment firm announcing a deal to buy the $5.5 billion hedge fund.
The big Wall Street firm had its eye on FrontPoint ever since John Mack took over as chairman and CEO of Morgan Stanley last year. Mack is trying to build out the firm's alternative investment business and re-enter the private equity playing field.
Officials with neither Morgan Stanley nor Greenwich, Conn.-based FrontPoint would comment on the purchase price. But sources familiar with the deal say Morgan Stanley is paying around $400 million for the hedge fund.
The deal to buy FrontPoint comes just days after Morgan Stanley bought an equity stake in Avenue Capital Group, a $12 billion hedge fund that specializes in buying and selling distressed bonds.
FrontPoint follows a so-called absolute return investment strategy, which is not geared to outperforming a specific market index or other benchmark. In theory, absolute return funds are designed to perform well in both a rising and falling stock and bond market. Absolute return funds often rely on up to two dozen different investment strategies to generate returns.
In recent years, a number of Wall Street firms have either acquired hedge funds or bought stakes in hedge funds as a way of bolstering their alternative investment offerings. Two firms that have been active on the hedge fund acquisition front are
Morgan Stanley's desire to bolster its hedge fund offerings comes at a time when its prime brokerage business is gathering new hedge fund customers.