Backers mull extension for Morgan Stanley megafund

HONG KONG Fri Dec 2, 2011 12:31am EST

HONG KONG Dec 2 (Reuters) - Morgan Stanley is asking investors in a $4.7 billion real-estate megafund to extend the investment vehicle's life because it has yet to put the majority of the money to work, a source familiar with the discussions said on Friday.

Investors in the Morgan Stanley Real Estate Fund (MSREF) VII Global will decide this month whether to approve a fresh lease of life for the fund, with the product set to expire in June 2012.

Of the $4.7 billion raised, only 40 percent or about 1.9 billion, had been invested, the source said, adding that the fund's managers had preserved much of the capital, anticipating further stress in the world's property markets.

Now they hope investors will agree that the time is right to deploy the capital.

Morgan Stanley and its property asset-management wing, Morgan Stanley Real Estate Investing, declined to comment.

With the sovereign debt crisis playing out in the euro zone, and austerity measures sweeping major Asian growth engines such as China and India, private-equity fund managers say attractive distressed investments are appearing.

Morgan Stanley on Monday named a new head for its global real estate investment fund in India, Shirish Godbole.

PERE magazine, the real estate publication of private-equity publishers PEI, reported on its website that Morgan Stanley would ask investors such as China Investment Corp, Government of Singapore Investment Corp Pte Ltd, General Motors Co and Canada Pension Plan Investment Board to approve an extra 12 to 18 months for MSREF VII.

PERE said the vote required a two-thirds majority, by capital, with larger investors therefore carrying more weight. The report said the fund had switched focus away from the United States after making more than 20 investments there in apartments, homes and portfolios of nonperforming loans.

At $4.7 billion, MSREF VII raised 46 percent less than its predecessor, MSREF VI, which raised $8.8 billion in 2007. Fundraising for the seventh fund came amid media reports that MSREF VI was facing a loss of as much as $5.4 billion.

One investor told Reuters in Hong Kong that he lost $20 million out of $25 million invested in the fund.

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