Morgan Stanley considering another Asian equity fund

Morgan Stanley, the world's second-biggest securities firm, said it may start a new private equity fund in Asia next year that would be larger than the US$520 million it raised last year for a fund, as buyout opportunities increase.

Morgan Stanley Private Equity Asia has invested US$675 million since it began operating in Asia in 1993, two-thirds of that in the last 18 months, said Chin Chou, head of the private equity unit in Asia. Half of the money raised in August has already been invested, he said.

"We're halfway done in that fund and it's gone a little bit faster than we thought," Chin said.

"If the pace continues, we'll be in a position to raise more money in 2007 and it'll be larger than last year's fund, he said."

Private equity and venture capital investments in the Asia Pacific region more than tripled to US$19.1 billion through the first five months of this year, according to data from the Asian Venture Capital Journal.

"There was lots of fund-raising in the region last year and you'll see these people starting to make more investments," said Vincent Pun, senior research manager at the Asian Venture Capital Journal.

"China, India, Korea and Japan are the major markets, though the first two countries are still the most active in terms of volumes of deals," he said.

Morgan Stanley's private equity fund, which has been buying stakes in Chinese and South Korean companies, made its first investment in Taiwan in May by purchasing 19.9 percent of CTCI Corp (中鼎工程), an engineering and construction company. The firm's fund opened its first office in Tokyo earlier this year and will start looking for investment opportunities in India, Chin said.

Buyout and venture capital acquisitions in the Asia Pacific region totaled US$5.7 billion last year with 182 transactions announced during the first five months of last year. No value was disclosed for an additional 41 deals, according to the Asian Venture Capital Journal. The number of transactions jumped to 344 by the end of May.

Asian companies are selling stakes to buyout firms on the expectation their businesses will be better run, with better corporate governance, and will grow faster, Chin said.

"Then when you go public, the receptiveness of investors will be much better," he said.

Asian companies are also tapping private equity as an alternative source of funding to bank loans and stock issuance, he said.