Morgan Stanley MS, one of the largest banking institutions in the world, is focusing on expanding its investment horizon to early-stage companies. While global startup investing levels declined 38% year over year to $285 billion in 2023, marking the slowest year for venture funding in five years, the anticipated rate cuts and bullish overall outlook have rejuvenated institutional investor interest once again.
“In the coming year, we will see a rebound in VC [venture capital] fundraising from the depths of 2023 — though don’t expect fundraising to hit the highs of 2020 and 2021, as managers will continue to face an uphill battle securing commitments,” Sunaina Sinha Haldea, global head of private capital advisory at Raymond James told Forbes.
Backed By Industry Behemoths
Morgan Stanley’s investment management division partnered with industry-leading corporate partners such as Hearst Corp., Microsoft Corp. and Walmart Inc. alongside Altria Group, Ten Figures and Phalanx Impact Partners to launch the Morgan Stanley Next Level Fund. The Next Level Fund has $50 million in capital commitments, which it plans to invest in early-stage technology and technology-enabled companies, with an emphasis on those having underrepresented members in their founding teams.
The target sectors encompass technology, consumer/retail, financial technology, healthcare, consumer products and media and entertainment. Beyond financial support, portfolio companies stand to gain access to the extensive global resources and capabilities provided by the corporate partners involved in the fund.
“We believe Next Level offers a differentiated and advantaged strategy to both investors and target companies in that it has the ability to leverage the global resources, brand and capabilities of Morgan Stanley. For companies, this access and institutional engagement could be critical to their success,” said Alice Vilma, co-head of the Next Level fund.
As of Nov. 21, Morgan Stanley’s Next Level Fund has invested approximately $12.5 million of the capital across nine companies: HourWork, Bodily, oak9, PowerToFly, AptDeco, Encantos, Nvisionx, TomoCredit and Cohesion.
Other Capital Raises
On Dec. 7, Morgan Stanley Investment Management Inc. raised roughly $1.2 billion in equity capital commitments for North Haven Expansion Equity IX and North Haven Expansion Credit II.
These funds, overseen by Morgan Stanley Expansion Capital, are slated to be used for later-stage growth equity and credit investments in high-growth sectors such as technology, healthcare, consumer, digital media and more. The raise surpassed the target of $850 million by 40%.
“As a global brand targeting later-stage, private companies where the same investment team has the flexibility to offer either equity or credit solutions, we believe these two new funds will allow Expansion Capital to continue our long history of providing bespoke financing solutions just as the market is seeing a pullback from both growth equity investors and venture lenders. Our consistent emphasis on disciplined, efficient portfolio company financial performance remains core to our strategy and is a fundamental component of our success as a platform,” said Pete Chung, head of Morgan Stanley Expansion Capital.
While investments in the startup industry often take some time to reap returns, they are historically one of the best-performing alternate asset classes.
With the Federal Reserve expected to cut rates in 2024, consumer spending levels and borrowing activity are expected to pick up in the upcoming quarters, boosting Morgan Stanley’s profit levels.
Barclays currently has an Overweight rating on Morgan Stanley stock with a price target of $116, indicating a potential upside of over 24%. Goldman Sachs has a Buy rating on Morgan Stanley, with a price target of $100. This indicates a potential upside of nearly 7%.