Morgan Stanley nears EUR 1.6bn-plus first close for maiden European direct lending fund

Josh O'Neill
18 August 2023

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Morgan Stanley is poised to hold a first close of its inaugural European direct lending fund at EUR 1.6bn-plus, as the investment manager prepares to begin deploying capital in Europe’s burgeoning private credit market, two sources familiar with the situation said.

The US-based firm, which began marketing its maiden European direct lending strategy last year, is expected to hold a formal first close imminently, according to the first source.

The EUR 1.6bn-plus figure, which according to the first source factors in leverage, is thought to represent one of the largest first closes for an inaugural European direct lending vehicle amid a challenging fundraising climate for private capital providers.

In terms of a final close, Morgan Stanley has not formally disclosed a target but is expected to raise in excess of EUR 3bn, the first source noted.

The fund will have the ability to make investments of varying structures and size, from lower-mid-market leveraged buyouts through to large-cap add-ons, the first source added.

Morgan Stanley's European direct lending team, headed up by former Arcmont partner Mark Jochims, has begun notifying sponsors and advisors that it is ready to begin deploying capital, the first source continued.

Jochims, who joined Morgan Stanley as Head of European Private Credit from Arcmont in January 2022, has since made numerous hires, including managing directors Hamza Filali, formerly of CVC Credit, and Shaun Mullin, who joined from Sixth Street. In addition, Morgan Stanley hired a trio of former Alcentra employees, GlobalCapital reported last year.

In Europe, Morgan Stanley is – to a degree – seeking to emulate the success of its US-based private credit platform, which wields more than USD 9.1bn of available capital.

In the US, Morgan Stanley Private Credit offers first lien, second lien, mezzanine, unitranche, and annual recurring revenue (ARR) cash flow-based loans, as well as structured equity and minority equity co-investments, to sponsor-backed and non-sponsored companies with USD 5m–USD 100m-plus of EBITDA, according to its website.

In Europe, Morgan Stanley's multi-product private credit platform resides within the group's investment management division.

Morgan Stanley is entering Europe's direct lending market at a time of intensifying competition from both new entrants and incumbents that are vying for third-party capital.

Last week, this news service reported that Arcmont is seeking to secure up to EUR 10bn for its fourth European direct lending vintage. Meanwhile, rival banks including Deutsche Bank, Barclays and HSBC have been reported to be raising dedicated European direct lending vehicles, while JPMorgan has reportedly ring-fenced USD 10bn of balance sheet capital for its direct lending strategy.

Morgan Stanley declined to comment.