Morgan Stanley’s Fleming Sees Asset-Management Unit Gaining

Feb 12, 2014 5:54 pm ET

(Updates with expansion plans in the seventh paragraph.)

Feb. 12 (Bloomberg) -- Greg Fleming, who runs Morgan Stanley’s asset-management division, said the business will boost profitability in the next two years while increasing assets by about one-third.

Reaching about $500 billion of assets under management by the end of 2016 from $373 billion in December is “very achievable,” Fleming, 50, said today at an investor conference hosted by Credit Suisse Group AG. Return on equity will rise to about 20 percent by then and will be maintained consistently, he said. That compares with 18 percent last year.

Fleming set new targets four years after he was brought in to help repair the asset-management unit amid losses and investor withdrawals. While the division is the smallest of the New York-based investment bank’s three businesses, it was also the most profitable in 2013.

“We’ve come a long ways,” Fleming said. “We are well- positioned over the next three years to continue to grow investment management and increase its relevance and contribution to Morgan Stanley.”

The division, known as Morgan Stanley Investment Management, had $3 billion of revenue and $984 million of pretax profit last year, the most since 2007. Assets under management have climbed 46 percent from when Fleming took over.

The unit now oversees $343 billion in traditional equity and fixed-income funds as well as money-market products and funds that invest with hedge-fund and private-equity managers. It has $30 billion of assets in a merchant-banking unit that operates real-estate and private-equity funds.

Expansion Plans

Fleming said he’ll boost assets and revenue by increasing the North American sales force, adding more choices within long- only fund offerings and raising new merchant-banking funds. The firm will also seek more assets for its liquidity products and reduce capital tied up in hedge funds, he said.

Risks to the plans include new regulations, an investor shift toward passive investments and fee compression, Fleming said. Merchant banking will take 18 months to 36 months to show benefits from raising new funds, he said.

Fleming also runs the firm’s brokerage, known as Morgan Stanley Wealth Management, that serves mostly individual investors.

--Editors: Rick Green, Dan Kraut