Morgan Stanley’s Alternative Investment Unit Raises $516 Million Fund

The new pool, which will make bets alongside hedge funds, quickly attracted institutional investors.

(Bess Adler/Bloomberg)

(Bess Adler/Bloomberg)

Morgan Stanley has raised $516 million for a fund that will co-invest with hedge fund managers.

The bank’s alternative investment group completed fundraising within a few weeks, attracting capital from institutional investors and high-net-worth individuals, according to a statement Monday from Morgan Stanley. Private and public pensions, foundations, and family offices were among the big investors contributing capital to the new investment pool.

Riverview Strategic Opportunities Fund III seeks to relieve “recent liquidity pressure” on hedge funds by purchasing investors’ stakes in them and making “medium-term” bets alongside managers, Morgan Stanley said. The more than $3 trillion hedge fund industry is known for targeting gains from investments held for a shorter period than private equity deals.

Managers are trying to “alleviate the constraints they face in the market and seek opportunities in the liquidity gap between traditional hedge fund and private equity investments,” Mark van der Zwan, chief investment officer and head of Morgan Stanley Alternative Investment Partners’ hedge funds team, said in the statement.

Total assets held by U.S. hedge funds rose slightly this year to $2.58 trillion at the end of March, from $2.57 trillion at the end last year, according to Preqin, an alternative-assets data provider. U.S. hedge fund managers have increased assets by about 9 percent from $2.37 trillion held at the end of 2016.

Public pensions are the largest allocators, with $302 billion invested in hedge funds, Preqin said at the beginning of August. “Despite high-profile redemptions taking effect, this total has risen year-on-year since 2013,” the data provider said at the time.

Private pensions are the second-biggest allocators in the U.S. hedge fund market, followed by endowments and foundations, Preqin data show.

Morgan Stanley’s hedge funds team had about $23 billion in assets under management and advisement at the end of March, according to the bank’s statement.