Chris Hsu, who left Citadel in late 2006, has wooed Morgan StanleyÆs investment-management arm to participate as a minority investor in his new hedge fund asset managment company, Abax Global Capital Limited. A spokesperson for Morgan Stanley was not able to disclose the price paid, nor the percentage size of the stake purchased.

AbaxÆs avidly awaited fund will invest in Asian special situations and the unconfirmed market buzz is that it will launch with $1 billion of assets. The fund will be based in Hong Kong and will focus on the Greater China region, making it possibly the biggest debut fund originating from Asia ex-Japan.

Chris Hsu ran the special situations group at Citadel, and is joined at Abax by ex-Citadel trader and risk manager Frank Qian, plus former managing director of Merrill LynchÆs debt capital markets department Donald Yang.

The deal is the latest in a series of hedge-fund acquisitions for Morgan Stanley Investment Managers (MSIM). Last year it went on a shopping spree; the biggest deal was the acquisition of the $5.5 billion FrontPoint Partners. That deal also saw key FrontPoint executives merged into the MSIM hierarchy.

Abax will join several other alternative asset managers in which Morgan Stanley holds a minority stake. These include New York-based distressed player Avenue Capital and London-based Lansdowne Capital. MSIM also markets products by Traxis Partners, a US-based hedge fund established in 2003 by former Morgan Stanley strategist Barton Biggs.

In those other deals, Morgan Stanley had bought into existing funds with track records. This is the first time the firm is getting in before a strategy has been launched.

One hedge fund manager who is currently at the same pre-launch development phase as Abax, reacted upon hearing the news. ôReally? IÆve never heard of that happening before. How much did Morgan Stanley pay? If theyÆd bought into us, IÆd have definitely chosen Morgan as our prime broker.ö