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Morgan Stanley buys Greenwich-based FrontPoint(Stamford Advocate, The (Stamford, CT) (KRT) Via Thomson Dialog NewsEdge) Nov. 1--In the six years since its formation, Greenwich-based FrontPoint Partners LLC has become one of the most recognizable names in the industry, growing from an initial $500,000 investment to $5.5 billion hedge fund. Yesterday, FrontPoint, founded by some of the business' most legendary players, realized perhaps its most momentous achievement when it agreed to become part of Morgan Stanley, the nation's second largest securities firm by market value. Morgan Stanley, which has been aggressively seeking acquisitions to develop its alternative investments unit, is paying about $400 million for FrontPoint, or 7 percent of its $5.5 billion in assets, said two people familiar with the transaction. Terms of the transaction weren't disclosed in a statement released yesterday by the company. The acquisition "gives us the strong foundation we need to pursue our ambitious growth plans in alternative assets," John Mack, Morgan Stanley's chief executive officer, said in the statement. The Greenwich firm, with about 140 employees, will remain at its Greenwich Plaza location and is in a position to grow in town from both an employee and portfolio management perspective, said Gil Caffray, a FrontPoint founding partner. Caffray previously was a managing director at Tiger Management LLC, the firm founded by Julian Robertson that was once the world's biggest hedge fund manager. He co-founded FrontPoint with Philip Duff, also a former Tiger managing director, and Paul Ghaffari, a former money manager for billionaire George Soros. The fund had been in talks with Morgan Stanley on and off throughout the year, as the investment bank looked to beef up its underperfoming alternative investment unit. The FrontPoint acquisition comes on the heels of the bank's announcement Monday that it agreed to buy a minority stake in Avenue Capital Group, a hedge fund which has $12 billion in assets. Competitors have increased their ownership of hedge funds to boost profits. JP Morgan Chase & Co. acquired control of Highbridge Capital Management about two years ago, and Lehman Brothers Holdings Inc. agreed last year to buy 20 percent of Dwight Anderson's Ospraie Management LP, a $2 billion hedge fund. "There is no question Morgan Stanley has a new initiative from its investment side . . . to really grow the alternative investment side of the business and drive more assets to the division," said Caffray. FrontPoint is one of "the very strong building blocks" to help achieve that goal, he said. As a manager of managers, FrontPoint provides auditing, compliance and other infrastructure to hedge funds in return for a chunk of the management and performance fees they generate. It has 11 management teams offering 21 investment strategies. Caffray said FrontPoint has added three new management teams in the past 45 days, and will likely continue to grow thanks to the resources and brand-name power Morgan Stanley brings to the table. Each of the teams will continue to manage their respective funds once the acquisition is complete, Caffray said. And the bulk of FrontPoint's executive team will assume leadership roles within Morgan Stanley's asset management division. "They are not buying assets. They are buying people," Caffray said. Duff will become a consultant to Morgan Stanley, working with Mack on strategy, the statement said. Caffray will continue as portfolio manager of the FrontPoint Multistrategy Fund and will become vice chairman of Morgan Stanley's investment management division. Ghaffari will leave to start his own investment firm, Morgan Stanley's statement said. The division's operations chief will be Joanne Pace, a FrontPoint partner and chief operating officer, and FrontPoint partner Mike Kelly will become chief investment officer of the division. The acquisition will return several FrontPoint executives to the Morgan Stanley fold, including Duff, who worked for firm for 14 years and was its chief financial officer from 1994 to 1997. FrontPoint partner Arthur Lev will become general counsel of Morgan Stanley Investment Management, a job he held before, the statement said. FrontPoint partner Daniel Waters was a Morgan Stanley managing director and served on the investment team in the private wealth-management division, according to FrontPoint's Web site. He will run institutional distribution for Morgan Stanley Investment Management. With so many people hailing from Morgan Stanley initially, "It's a great complement, both from a cultural and resource standpoint," Caffray said of the acquisition. Bloomberg News contributed to this story. 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