FrontPoint Partners’ portfolio managers are taking back control of their hedge fund firm four years after they sold it to Morgan Stanley for around $400 million.

The sale of the $7 billion firm, which is best known for its bearish bets on subprime mortgages, comes as Wall Street is preparing for new rules that restrict limit holdings of hedge funds and private equity funds. It  is expected to close in the fourth quarter. Morgan Stanley will be left with a minority stake.

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