GLOBAL - Morgan Stanley has launched the first real estate fund of funds vehicle dedicated specifically to acquiring secondary interests in existing funds.

The Pheonix Global Real Estate Secondaries fund raised $370m (€275m) to buy interests in opportunistic and value-added private equity-style funds on the secondary market.

The vehicle will aim to capitalise from investors exiting from closed-ended real estate funds by selling their interests at a discounted prices.

There has been much debate around the potential emergence of an active secondary market in real estate funds, including a report from the European Association for Investors in Non-listed Real Estate Vehicles (INREV) in 2009, but activity has so far been limited.

Fund of funds managers are potentially the biggest beneficiaries of an active secondary market, because it would allow them to trade in and out of existing funds for their underlying investors and increase liquidity.

However, Morgan Stanley Alternative Investment Partners (AIP) is the first manager to launch a strategy dedicated to the practice.

There is evidence of an appetite for the real estate secondaries among pension funds: the Avon Pension Fund in the UK, for example, has enabled Partners Group to invest in secondaries as part of its new global real estate strategy.

"For the first time ever, investors in private equity real estate funds are selling significant interests in the secondary market, and as a result, we are finding tremendous opportunities to acquire high quality assets at attractive valuations," said Joseph Stecher, head and chief investment officer for real estate fund of funds at Morgan Stanley (AIP).

"We are focusing on best-in-class small-to-mid-size fund managers globally as we seek to capitalise on several distinct advantages of investing in the secondary market, including the ability to avoid start-up costs and fees, accelerate investment programmes and shorten time for realisation, and effectively value underlying asset portfolios."

Morgan Stanley exceeded its capital raising target of $250m (€184.7m) for the new fund, which Jacques Chappuis, head of Morgan Stanley AIP attributed partly to both the strength of the management team and the vehicle's "differentiated strategy".

He said: "We believe that demand for comprehensive expertise in real estate investing combined with the team's fiduciary background, direct real estate transactional experience and unique access to a substantial flow of secondaries transactions contributed to the strong response we saw from institutional investors globally."

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