* Morgan Stanley Asia PE arm raises more money despite
* Firm has made two investments from Fund IV, in S.Korea and
* MS Asia PE first 3 funds returning net IRR of over 20 pct
(Adds details of fund strategy, performance, past deals)
By Stephen Aldred
HONG KONG, July 7 Morgan Stanley said its
Asia private equity unit has raised $1.7 billion in its fourth
Asia fund as it seeks investment opportunities in China and
The fund, Morgan Stanley Private Equity Asia IV LP, has
already made two investments from the new fund, and raised more
capital than initially targeted, the Wall Street bank said in a
statement on Monday.
Morgan Stanley had originally targeted $1.5 billion with the
fund, the same as its third Asia fund.
One of the key focus areas for Fund IV will be China.
"The last two years in China, we have seen the most
attractive entry prices we have seen in the last 10 years," Chin
Chou, CEO of Morgan Stanley Private Equity Asia (MSPEA), told
Morgan Stanley's fund-raising comes as many banks spin off
their private equity arms due to the Volcker rule.
The post-2008 crisis regulation restricts U.S. banks from
trading on their own accounts and caps their investments in
risky businesses such as hedge funds and private equity to just
3 percent of Tier I regulatory capital.
Despite that restriction, Morgan Stanley Private Equity Asia
(MSPEA) has raised more money with Fund IV, its first fund since
the Volcker rule, and with more of it from third-party
The firm raised $1.65 billion from third-party investors for
Fund IV, compared to $1.1 billion for Fund III. Morgan Stanley
contributed $50 million, or 3 percent of the latest fund,
compared to $400 million, or 27 percent of the previous fund.
Chou told Reuters that the successful fund-raising was
partly because it was the firm's fourth fund, and because the
firm has a track record of strong performance.
Chou declined to comment on details of performance, but a
source with knowledge of the firm said its first three funds are
returning a net internal rate of return of over 20 percent, and
have returned more than four times money on a gross basis for
Making two to three times money is considered a very good
return in private equity circles.
MSPEA has invested around $2.5 billion in more than 50
investments in the region in the past 20 years.
The firm has already completed investments in Ssangyong C&B
Monalisa in South Korea and Janalakshmi Financial Services in
India from its fourth fund.
It is finalising two take-private deals for overseas listed
China companies, Noah Education Holdings Ltd and Sino
Gas International Holdings Inc.
Its past investments include Ping An Insurance Group
and Sihuan Pharmaceutical Holdings Group Ltd
, which is seen as a textbook case of the profits that
can be made by buying out overseas-listed China companies, then
relisting them closer to home.
MSPEA delisted Sihuan Pharma from Singapore in late 2009
before relisting the company in Hong Kong in November 2010. The
firm has not fully exited, but expects to make around 8 times
its initial investment when it does, said the source with
knowledge of the firm, who declined to be named as details of
the funds were private.
(Reporting by Stephen Aldred; Editing by Denny Thomas and Ryan