Excerpts: John Mack’s Letter to Shareholders dated February 1, 2006
- We will take full advantage of our global scale and our world-class franchise by further integrating our businesses and putting more of our own capital to work in principal investments.
- We are employing more of our own equity capital to work in principal investing, both independently and together with clients as investment partners. Morgan Stanley’s global franchise provides us with a vast array of investment ideas, and we believe that applying our own capital in this fashion will have significant benefits in terms of client collaboration and increased returns for the firm.
- We largely missed the expansion in the mortgage business, where our competitors grew aggressively. Now we can and will make sure that our role in the mortgage markets is commensurate with the scope of our fixed income operation. We also missed out in equity derivatives. Given our leading cash equities franchise and derivatives expertise, we have the ability to fill that gap, too. Our balance sheet was underleveraged; now we are going to consider more acquisitions to drive growth and commit sufficient capital to attractive principal investment opportunities.
- You have said you plan to increase your principal investments by about $1 billion over time. Does Morgan Stanley have the expertise and orientation to be successful in this business?
- Without question, Morgan Stanley has the expertise to successfully make principal investments. Our global franchise presents us with a vast array of investment ideas. We have successfully pursued a number of principal investments in the past, although less frequently than we should have and on an ad hoc basis. Now we are formalizing the process for making equity-based principal investments, enabling us to be more focused on these investment ideas and to make decisions in an expeditious manner. In the process, we hope to strengthen our client relationships and leverage our intellectual capital and global capabilities while striving to enhance returns to the firm.
- For instance, we have had increased success in delivering to individual investors some of the more sophisticated products, such as our real estate private equity funds, that leverage our leadership and capabilities in Institutional Securities.
Source: Morgan Stanley