Morgan Stanley launches private equity target indexes

Morgan Stanley has launched an array of indexes that seek to generate returns from potential or realised private equity buyouts.

The Morgan Stanley Target Equity Index Family comprises indexes of companies that are undervalued according to measures private equity firms typically use, such as price-earnings ratios. This is meant to allow investors who may not be able to access private equity to benefit from the rise in stocks typically associated with buyouts.

“This is a very cheap way to invest in private equity,” said Jo Tyler of Morgan Stanley’s London-based retail structured products group. She added that even if firms were not bought out, rumours that led to an increase in equity prices would still benefit investors in the indexes.

There are six regional indexes, covering US, European, UK, Japanese, emerging market and international equities. They will be calculated daily by Standard & Poor’s and rebalanced on a quarterly basis. Although the bank has not yet conducted any trades on the indexes, Tyler said it would offer tracker certificates to retail investors, along with an assortment of bespoke over-the-counter products.

The index family is based on a research report published by the bank in April 2003, which investigated investment opportunities created by private equity activity. It is part of a broader drive by Morgan Stanley to capitalise more on its in-house research.