Morgan Stanley announced today that its investment management division (MSIM) has reached a definitive agreement to acquire FrontPoint Partners, a provider of absolute return investment strategies.

FrontPoint has approximately US$5.5 billion in assets under management as of October 1, with 11 teams pursuing 21 different investment strategies. The transaction is subject to certain consents and regulatory approvals and is expected to close in December.

FrontPoint’s investment teams, which employ strategies that seek to deliver risk-adjusted absolute returns uncorrelated to broad market indices, will continue managing their respective funds once this acquisition is complete. The FrontPoint management and investment teams will also invest a significant portion of the proceeds from this deal in the FrontPoint funds. In addition, key members of the firm’s management team will assume leadership roles within Morgan Stanley and its asset management business.

“Over the past year, we have been actively building out our alternative asset capabilities, bringing in four experienced investment teams to our Absolute Return Strategies Group, launching many new alternative investment products and recently completing the acquisition of a minority interest in Avenue Capital,” said Owen Thomas, president and COO of MSIM. “The addition of FrontPoint – with its outstanding track record, management and investment talent, substantial assets under management, and sizeable institutional client base – gives us the strong foundation we need to pursue our ambitious growth plans in alternative assets. Furthermore, this acquisition brings many highly regarded former Morgan Stanley professionals back to the firm in management positions within MSIM.”

Gil Caffray, FrontPoint managing partner, said, “Morgan Stanley is committed to building a world-class alternative investment franchise and FrontPoint will be a cornerstone of that effort. Our investors will enjoy continued access to their current portfolio managers and we will significantly benefit from Morgan Stanley’s investment in our business, allowing us to expand our client-solutions capabilities by leveraging their powerful global platform.”