Morgan Stanley PE fund delayed by weak market

PUBLISHED : Saturday, 23 June, 2012, 12:00am
UPDATED : Saturday, 23 June, 2012, 12:00am


Morgan Stanley Private Equity Asia, an investment arm of the Wall Street bank, is set to postpone its latest pan-Asian fund after difficulty in raising US$1.5 billion, according to people familiar with the matter.

This is the fourth attempt of the fund, known as Morgan Stanley Private Equity Asia, to come to the market. Launched a few months ago, at least half the US$1.5 billion was expected to have been raised by this month. But weak global investor sentiment made that too hard a task.

Morgan Stanley Private Equity Asia has a track record of investing in a broad range of companies in the Asia-Pacific region, including Ping An Insurance Co and Inner Mongolia Mengniu Dairy, according to data provider S&P Capital IQ.

Morgan Stanley launched its first pan-Asian fund in 1993, raising about US$300 million, says S&P Capital IQ. That was followed by two more rounds in 2005 and 2007, raising US$515 million and US$1.5 billion.

The delay comes as PE funds in Asia are starting to experience downturns coming off a buoyant 2011.

'Even blue-chip company PE firms are finding it quite difficult to do fund-raising these days,' said David Brown, partner at PricewaterhouseCoopers Greater China Private Equity, which specialises in private-equity consulting. International banks used to be big investors in PE funds, but lately they have been selling their existing holdings in such funds to raise capital to meet more stringent global regulatory requirements, Brown said.

Morgan Stanley intends to proceed with the current fund-raising, said the sources, and has set a new timetable to start closing the fund by September. It had been wooing sovereign wealth funds, but those investors have turned cautious amid the weak global economic outlook. One banker involved in the fund-raising said he is confident of hitting the September target.

A Morgan Stanley spokeswoman declined to comment.

The postponement in closing the fund has poured cold water on predictions that Asia-Pacific's PE industry would be the first to bounce back to pre-2008 global financial crisis levels. The region's total PE investment returned to 2006 levels last year, reaching some US$65 billion, with China accounting for nearly 45 per cent of the new activity, according to management consultants McKinsey.

Asia accounted for 21 per cent of the global PE industry last year. In China, local investors are playing an increasingly active role in PE investments. The share of funds based on purely foreign investors has plummeted to 27 per cent from 87 per cent in 2005, says McKinsey.

PE firms have mushroomed in China in recent years. The China Daily recently cited an NDRC official as saying there were more than 10,000 venture-capital and private-equity firms at the end of last year.

But Bruno Roy, partner and head of principal investors practice at McKinsey in China, said that while there is indeed a plethora of PE firms active in China, the deal value is still concentrated among the top funds.