NEW YORK – Launched nearly two years ago, Morgan Stanley Capital Partners recently held a final close on $3.2 billion for its fourth private equity fund, Morgan Stanley Dean Witter Capital Partners IV LP, which ranks among the 10 biggest private equity funds ever raised.
The firm also held a final close for Morgan Stanley Dean Witter Venture Partners IV LP, rounding up $550 million.
Separately, the firm has terminated an agreement with technology-focused investment firm Convergent Partners because its chief executive, Gary Fernandes, has since taken a job as chief executive of Internet start-up Groceryworks.com. Although no deals were done in the nine months of the partnership, Fund IV had set aside $500 million for the Convergent joint venture.
The $550 million Venture Partners fund will invest alongside the main fund and focus solely on technology and health-care deals. Morgan Stanley Managing Partner Michael Hoffman said the fund typically will make smaller venture-capital transactions and use a diversified approach toward investing. The investment size targeted by the fund could range from $100 million start-ups to $1 billion buyouts. Hoffman added that Morgan Stanley was one of the earliest to commit private equity to growth investing.
“We haven’t done a traditional LBO since 1989,” Hoffman said. “We don’t see the value there. We have, in some respects, a large venture capital vehicle.”
Morgan Stanley Capital said the firm reached its $2.5 billion target in December 1998 and stopped actively marketing the fund when it reached $2.8 billion in early 1999. The fund hit the $3 billion mark in the first quarter of 1999 and remained open. The firm said there was a final push in 1999’s third quarter to bring in the last of the investors late to return to the fund.
Fund IV invests in technology, financial services, health care, telecommunications, basic industry and energy.
“[The firm] invests in industries that are large and are in transition. We team up with visionary executives to build business,” Hoffman said.
Foreign capital makes up about 25% of the new fund, including commitments from Kuwait Investment Authority and Government of Singapore Investment Corp.
Hoffman said the fund already is about 20% invested and committed through eight transactions including Travcorp., a health-care temporary employment service, Vanguard Health Systems, a hospital management company, and ConnectSouth Communications, a telecommunications services company.
Hoffman said the firm’s third fund has generated a 64% internal rate of return largely due to a $140 million equity investment made in 1995 in Equant, a publicly-traded global data communications company based in the Netherlands. Morgan Stanley sold a portion of its stake in Equant in two secondary offerings last year. The firm’s stake as of October 1999 was just over $3.5 billion, yielding an IRR of approximately 150%.
Limited partner Georgia Pacific, which has invested in Morgan Stanley Capital’s buyout funds since Fund II, said the firm’s third effort fared especially well. John Stettler, director of employee benefits investments for Georgia Pacific, called the fund’s telecom investments “a home run.”