Morgan Stanley Launches TALF Fund (MS)

Morgan Stanley (NYSE: MS) is launching a TALF fund.  It is slightly larger than its original target.  The fund probably won’t make a huge boost for earnings, but it is a further step into investing in some of the asset-backed securities.  The firm’s Morgan Stanley Investment Management group raised more than $600 million in capital from qualified high net worth and institutional investors.

The original target was $500 million and the strategy is for investing in securities eligible to serve as collateral under the Term Asset-Backed Securities Loan Facility, a.k.a. ‘the TALF,’ offered by the Federal Reserve Bank of New York.

The New York Fed and the Treasury Department announced the creation of the $200 billion TALF in late 2008 and launched it earlier this year. This will facilitate new issues of asset-backed securities.  The fund’s TALF strategy is to capitalize on market disruptions by sourcing undervalued credits and attractive cash flows in TALF-eligible securities.  The will mainly be AAA-rated by two agencies in auto, credit card, small business and student loans.

How this program will pan out has yet to be seen.

Jon C. Ogg
July 17, 2009