Morgan Stanley appeared to be unfazed yesterday by the turmoil in the credit markets as it named one of its most senior bankers to co-head a new $6 billion (£2.9 billion) private equity fund in Europe.

As banks worldwide refuse to fund new private equity deals, Morgan Stanley said that Brian Magnus would step down as head of its UK investment bank to spearhead the bank’s push into the controversial sector.

Mr Magnus, 41, has been one of Morgan Stanley’s most prolific M&A advisers, with a client list including some of the FTSE 100’s biggest names, such as Marks & Spencer and Whitbread. He said yesterday: “The private equity trend is not going away. It may be temporarily in remission, but long-term it is only going to get bigger.”

The bank said that Mr Magnus would be one of two partners heading Morgan Stanley Private Equity (MSPE) in London, alongside Graham Keniston-Cooper, who led Lazard’s aborted move in to the buyout sector.

For Morgan Stanley, the appointment of Mr Magnus emphasises the resolve of John Mack, its chief executive, to get back into a business that the Wall Street firm span off in 2004 after previous management decided that they were not confident about the level of risk involved.

Since then, however, several of the other big investment banks, notably Goldman Sachs, have generated billions of dollars in profits through participating in buyouts. With a fund of more than $15 billion, Goldman Sachs Capital Partners is now one of the world’s largest private equity groups. “The fact is we missed out on the last five years, so we’re not going to miss out on the next five,” Mr Magnus said.

Mr Magnus came to prominence in 2003 when he defended Marks & Spencer from a putative takeover by Philip Green, the retail entrepreneur. He also steered Pernod Ricard through its £7.6 billion takeover of Allied Domecq and advised Whitbread on the sale of its David Lloyd leisure chain.

Morgan Stanley is expected to contribute about $2.5 billion of its own cash toward the fund, leaving the partners to raise $3.5 billion from institutional investors.

Mr Magnus will be replaced by Simon Smith, the deputy to Franck Petitgas, Morgan Stanley’s head of European investment banking. Mark Warham, who is on secondment as head of the Takeover Panel, will return to the bank in a new role as chairman of UK investment banking.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax