Morgan Stanley CEO James Gorman has said multiple times that the firm is evaluating their hedge fund strategies, but he has not yet said anything publicly about the firm’s plans for FrontPoint.
We hear that those plans include completely spinning off FrontPoint soon. The 20-some portfolio managers who currently manage FrontPoint’s strategies are already preparing for the spin-off by negotiating ownership stakes.
The problem of how to determine who will get what percentage ownership stake in FrontPoint once it is spun off is apparently causing the management to bicker amongst themselves. The air is tense, we hear.
A spokeswoman for the firm told us that MS would decline to comment on market rumours, but here’s what we heard from the source
- FrontPoint will be spun off from Morgan Stanley by about 3-months time.
- The spun off hedge fund will likely continue to be managed by FrontPoint’s 20-some portfolio managers who are currently working at the fund under Morgan Stanley or be broken into smaller hedge funds.
- The portfolio managers are currently bickering over who will get what size ownership stake in FrontPoint after the spin-off.
We hear that months ago, FrontPoint’s 20-some number of portfolio managers were managing much more money than they manage currently. The hedge fund has been divesting large amounts of assets since about the beginning of the year.
Apparently, FrontPoint has been divesting large amounts of money previously invested in hedge fund assets recently because of the new regulations on how much investment banks can invest in hedge funds that resulted from the Volcker Rule’s passing last month.
Early last month, the hedge fund Copia spun off from FrontPoint.
At the time Tim Flannery, managing partner and founder of Copia, said, “Financial regulation is not the primary driver, but it certainly creates uncertainties for all money managers. We felt the uncertainties would be less, the more independent we are.”