According to Reuters, Morgan Stanley 's ( MS )
plans of raising global infrastructure fund may be severely hit by
the proposed Volcker rule. The proposed rule -an element of the
Dodd-Frank Act - limits the proprietary trading activities of the
banks by curbing the amount that can be invested.
Infrastructure funds invest in assets such as roads, airports,
power grids and electricity transmission networks. Along with a
long-term investment prospect, these assets provide investors
However, being private equity-type assets, these are less liquid
compared to standard stocks and bonds. With the stringent
regulations weighing down further on profitability of such funds,
Morgan Stanley Infrastructure Partners will have to be content with
a smaller share of profits.
This profit shrinkage has not been taken well by the executives of
the Infrastructure Partners. Many of the fund mangers, who were in
charge of supervising the infrastructure fund investments, have
either left or in the process of leaving the firm.
Moreover, stringent regulations would give the independent asset
managers - like The Blackstone Group LP ( BX ) and
The Carlyle Group LP ( CG ) - a
competitive edge over financial institutions such as Morgan
Stanley. Moreover, banks face limitations while holding
conventionally strong but capital-intensive businesses, chiefly
private equity assets, which are generally tied up for a number of
As a result, banks have been missing out on earning profits from
the infrastructure funds. Similarly, The Goldman Sachs
Group, Inc. ( GS ) was quite unsuccessful in its second
infrastructure fund initiative. It had to cut down its target of
fund raise by almost 50% to $3.1 billion from nearly $7.5 billion
in the middle of the marketing process following the announcement
of new regulations.
Whereas Global Infrastructure Partners Ltd -a private equity
firm- successfully raised about $7.5 billion for its second
infrastructure fund in 2012. This is the largest
infrastructure fund raised globally to date, overtaking
Goldman Sachs' first infrastructure fund, which raised $6.5 billion
BLACKSTONE GRP (BX): Free Stock Analysis Report
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MORGAN STANLEY (MS): Free Stock Analysis Report
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The Volcker Rule has been labeled as most divisive and fiercely
debated measure of post-financial crisis era of regulatory reforms
as it has put a question mark on the future of banks like Morgan
Stanley. This rule is sure to dent the top-line growth of U.S.
Moreover, majority of industry partakers opine that market
liquidity will be negatively impacted, transaction costs will
escalate, trading volumes will be diverted to other jurisdictions
and the whole economy may suffer due to the Volcker Rule. However,
it should not be forgotten that the primary aim of Volcker Rule is
to limit the risky activities of banks to safeguard the taxpayers'
money as well as the health of the economy.
The shares of Morgan Stanley currently retain a Zacks #3 Rank,
which translates into a short-term Hold rating. Considering the
fundamentals, we also maintain a long-term Neutral recommendation
on the stock.