Muller’s PDT Is Said to Get $500 Million From Blackstone

Peter Muller, founder of the Morgan Stanley trading group being spun out this year as a stand-alone hedge fund, raised more than $500 million from Blackstone (BX) Group LP, said two people with knowledge of the matter.

Muller, 49, whose proprietary trading group returned more than 20 percent a year over the past decade, started his first fund in July at New York-based PDT Partners LLC, according to one of the people, who asked not to be named because the information is private.

Blackstone, whose hedge-fund unit manages about $43 billion, routinely invests as much as $500 million with new managers, although for that amount of cash it usually takes a piece of the business in return. Blackstone, also based in New York, isn’t getting a stake in PDT.

“It’s almost unheard of that a manager could get more than $500 million at launch from an investor without giving up any economics,” said Brad Balter, head of Boston-based Balter Capital Management LLC, which invests client money in hedge funds. “It’s testament to his market power and ability.”

Muller declined to comment through a spokesman. Peter Rose, a Blackstone spokesman, also declined to comment on the firm’s investment.

Morgan Stanley said last year it would spin off Muller’s group, founded as Process Driven Trading in 1993, to comply with the Dodd-Frank legislation that bars banks from trading their own capital.

Locked Up

PDT is planning a second fund that will start trading in January with about $1.5 billion, said one of the people. By then, Muller expects to have $2 billion under management in all, the person said. He doesn’t plan any fee discounts and some of the $2 billion will be locked up for seven years, said the person.

Few funds in the past few years have started with so much money. Rick Gerson’s Falcon Edge Capital LP raised $1.2 billion this year, according to a person with knowledge of the firm. Morgan Sze, a former Goldman Sachs Group Inc. trader, gathered $1.1 billion for his Azentus Capital Management Ltd. when he started trading in April 2011.

Muller, a native of Philadelphia, graduated from Princeton University in 1985 with a bachelor’s degree in mathematics. He is a so-called quant manager, whose computer-driven trading system is based on algorithms that look for price discrepancies in global markets.

Subway Keyboard

Muller started at Morgan Stanley (MS) in 1992 after a stint at Barra Inc., a firm in Berkeley, California, that used mathematics to help fund managers measure and control risk. After working for seven years at the bank, he took a sabbatical during which he kayaked in the Grand Canyon, trekked in the kingdom of Bhutan and played his keyboard in New York City’s subway.

PDT has 100 employees including Muller, who is chief executive officer; Brian Thomas, chief financial officer; and Ajay Salhotra, chief compliance officer. Muller holds a majority stake in the firm through PDT Capital Group LP and an affiliate called Alpha Dog LLC, according to the filing.

In a July 2011 interview with Bloomberg News, Muller said that ownership of the firm would be spread among 11 partners after it is spun off. Morgan Stanley holds a stake of less than 5 percent through a subsidiary called Pettingell LLC, the investment adviser registration shows. It’s unclear whether Morgan Stanley will continue to own that stake after the spin off is complete, one of the people said.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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