June 11 (Bloomberg) -- Henry McVey resigned as chief U.S. investment strategist at Morgan Stanley after 12 years with the second-largest securities firm to join hedge fund Fortress Investment Group LLC.

``It has been a great ride,'' McVey, 38, said in a statement. ``I am now looking forward to working with Morgan Stanley as a client.''

McVey, who was voted runner-up among portfolio strategists in last year's Institutional Investor survey, will lead an expansion into ``deep value'' investing at Fortress, the first U.S. manager of private equity and hedge funds to sell shares to the public, according to a company statement.

Money-management firms have lured advisers at Morgan Stanley and other brokerages. McVey's predecessor, Steven Galbraith, quit in 2004 to join hedge fund Maverick Capital. Byron Wien and Barton Biggs also left strategist roles at Morgan Stanley earlier this decade to join hedge funds. Ajay Kapur, who had been Citigroup Investment Research's chief global equity strategist, left in February to create First Horse Capital.

McVey has been an accurate forecaster of the stock market. His prediction in December 2004 that the Standard & Poor's 500 Index would end 2005 at 1250 was off by less than 2 points.

Hurricane Katrina

The strategist misfired with a September 2005 forecast for U.S. health-care stocks to outperform producers of raw materials and capital goods in the wake of Hurricane Katrina.

A gauge of raw-materials companies in the S&P 500 was the best performer among 10 industries in the four months after McVey made his call, climbing 11 percent. A measure of industrial shares rose 6.2 percent during the period, while health-care stocks added 0.5 percent.

On June 4, when the S&P 500 closed at a record high of 1539.18, McVey increased his year-end forecast for the measure to 1625. That made him the third-most bullish strategist among 14 Wall Street advisers tracked by Bloomberg News, trailing the 1650 estimate from Prudential Equity Group's Edward Keon and UBS AG's David Bianco.

The S&P 500 has lost 2 percent since the day McVey boosted his forecast.

McVey led U.S. strategy at Morgan Stanley since January 2004 and was previously a financial-services analyst with the firm. A Morgan Stanley spokeswoman said the company hasn't picked a replacement.

More Spending

Hedge funds and other investment companies are increasing in-house spending on research while cutting back use of Wall Street analysts. Money managers will spend $7.4 billion on in- house research in 2011, up 28 percent from $5.8 billion in 2006, according to Integrity Research Associates LLC, a New York-based adviser to fund companies.

Fund companies cut spending on Wall Street research to $4.9 billion in 2006 from $5.4 billion in 2004 and will reduce it to $4 billion in four years, Integrity estimates.

Morgan Stanley, which trails only Goldman Sachs Group Inc. in market value among securities firms, named Chief Economist Stephen Roach as the firm's Asia chairman in April. Roach will take up his post this month.

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.

Last Updated: June 11, 2007 17:00 EDT