Why Morgan Stanley Stock Sank by 4% Today
Key Points
The financial services giant's investment management arm imposed a limit on redemptions from a private credit fund.
Market players are worried that private credit providers are more risky than previously thought.
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Something close to a crisis is unfolding in the world of private credit, and on Thursday, Morgan Stanley's (NYSE: MS) stock was affected. On news that its investment management unit capped withdrawals from one such fund, investors bailed on Morgan Stanley shares, leaving them with a nearly 5% loss that trading session.
Private panic
Late on Wednesday, Morgan Stanley's North Haven Private Income Fund (PIF) sent its unit holders a letter notifying them of the new cap. Specifically, the fund wrote that it will limit tender requests to 5% of all units outstanding, as of the count last Dec. 31. This followed the fund returning around $169 million to its unit holders in redemptions already this quarter, for about 45.8% of the total requested.
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Although that cap is a standing rule of the fund, it was the latest in a series of crisis moments for the private credit industry. Last month one of Blue Owl Capital's funds unexpectedly made a similar move following a fraud investigation into auto parts specialist First Brands Group. That company was supported by private credit.
All of this has caused a stir in that world, with investors in such funds rushing to redeem their units and shares. Reuters quoted Morgan Stanley as saying that North Haven had investments in 312 borrowers in 44 industries as of the end of January. It claimed, in the news agency's words, that "credit fundamentals at the fund remain broadly stable."
No need to press the red button... yet
Morgan Stanley is a large, complex, and sprawling financial services company, so North Haven's travails aren't going to short-circuit the entire company. That being said, Morgan Stanley's success is due in no small part to its reputation as an effective and clever operator throughout the finance ecosystem, so North Haven's move (and its exposure) isn't making it look very sharp just now.
All the same, I wouldn't sell Morgan Stanley stock if I were an investor; for now, the private credit rout is a challenge it can overcome.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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