Morgan Stanley Credit Partners, which is part of the bank’s Merchant Banking & Real Estate Investing business, has raised about $1 billion for Morgan Stanley Credit Partners II, the firm’s second investment vehicle targeting corporate mezzanine debt and related instruments issued by mid-market companies in North America and Western Europe.
The first Morgan Stanley Credit Partners fund also raised $1 billion in 2011 and is now harvesting returns to investors. The second fund will employ the same strategy. “We’re targeting high-quality, middle-market companies that need junior capital. We seek to leverage the resources of our broader merchant banking platform to give us insights, and we plan to deploy the capital over the next four years,” explained Hank D’Alessandro, head of Morgan Stanley Credit Partners. “It’s a very straightforward strategy predicated on rigorous due diligence,” he added.
The Morgan Stanley credit arm has a broad mandate in terms of industries, though Alessandro said the firm tries try to focus on complicated areas where it has an edge, such as technology, healthcare, financial services, telecom and energy.
He also thinks that worries about mezzanine falling out of favor are largely unwarranted. “Mezzanine continues to deliver higher net returns than high yield, with lower volatility and returns uncorrelated to equities,” D’Allesandro told PDI. He declined to comment on returns from the previous fund.
LPs in the second fund are a combination of institutional investors, including pensions, endowments and insurance companies, as well as high-net-worth individuals. They are based in both the US and Europe. A statement from Morgan Stanley said that the institutional participation in the second fund is over double the size in terms of commitments compared to the predecessor fund.
The new fund has already invested about $144 million with four borrowers.
“Our Credit Partners investment team continues to focus on finding investment candidates that have leading market positions and generate strong free cash flow and returns on invested capital. We bring a partnership approach to our relationships with financial sponsors and management teams, and look for investment opportunities where the companies that join our portfolio can benefit from the access to the network and resources of a global financial services firm,” D’Alessandro said in a statement.
Morgan Stanley Credit Partners is an investment platform for mezzanine debt and related instruments issued by mid-market companies in North America and Western Europe. Credit Partners is part of Morgan Stanley Merchant Banking & Real Estate Investing, the bank’s direct private investment group which invests behalf of a diverse global client base, including governments, institutions, corporations and individuals.