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Morgan Stanley (NYSE: MS) looks like they are getting busy on the private equity side, while others are not.

The investment banking, brokerage, and private equity firm plans to launch a private equity unit in India May 1, using funds from its Asia-specific private equity fund for $1.5 billion that closed last year. Reuters has reported that the unit will be managed by Aluri Srinivasa Rao. Previously, he worked at ICICI Venture of ICICI Bank, India's No. 2 lender. Morgan Stanley already has an investment bank and an asset management firm in operation in India, and the private equity growth in India is a response to India's rapid economic growth and opportunities. The report also noted that The State Bank of India reportedly is in talks with multiple foreign firms to start private equity funds in India.

Morgan Stanley's real estate fund, Special Situations Fund III, completed its third offering in a report by MarketWatch raising $2.5 billion. Most funding came from foreign investors. The completion of this fund brings the total Special Situation funding to $5.9 billion.

Raising "funds" isn't necessarily the same as entering deals, but generally the latter follows suit for a portion of the funds.

Jon C. Ogg is the editor of the Special Situations newsletter for 247WallSt.com.

Clear Channel Communications Inc. (NYSE: CCU) is going on the offensive. Affiliates of Bain Capital and Thomas H. Lee are filing breach of contract suit against the banks in the buyout deal, and Clear Channel itself joined in the complaint.

The firms are filing suit against against Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia.

Some of the allegations are that banks inserted poison provisions, pretext and misdirection, and even a re-cut of the deal as they faced $2.65 billion in losses (that figure according to WSJ).

This one may be a done deal for sure now. When buyers and sellers have to start suing lenders, it is not all that frequent that those providing the leverage get forced into it.

But on the flip side, those banks should have to pay severe business penalties via a break-up fee for backing away.

Morgan Stanley (NYSE: MS) did worse than most investors thought it would. The investment bank reported income from continuing operations for the fiscal year ended November 30, 2007 of $2,563 million, or $2.37 per diluted share, compared with $6,335 million, or $5.99 per diluted share, a year ago.

The loss from continuing operations for the fourth quarter was $3,588 million, or $3.61 per diluted share, compared with income from continuing operations of $1,982 million, or $1.87 per diluted share, in the fourth quarter of 2006. Net revenues were negative $450 million, compared with $7,849 million in last year's fourth quarter

The part that was hard to swallow was unexpected trouble during November. The firm has an additional $5.7 billion writedown from U.S. subprime and other mortgage related exposures in November in addition to the $3.7 billion writedown it had announced last month as of October 31. This results in a total fourth quarter writedown of approximately $9.4 billion.

Citigroup (NYSE: C) announced yesterday that it will acquire Metalmark Capital. Terms of the deal were not made public.

Metalmark has been independent since 2004. Before that date, it was owned by Morgan Stanley (NYSE: MS). The head of Metalmark, Howard Hoffen, managed Morgan Stanley Private Equity, which included Morgan Stanley Capital Partners. In the last 20 years, Metalmark has invested over $7 billion in mid-size companies, according to The New York Times.

Another piece in today's Times suggests that banks are getting back into private equity after years of separating their banking and private equity functions due to concerns over conflicts of interest. Just last year, Citi spun off CVC Equity Partners, a domestic buyout unit, now called Court Square Capital. But the tremendous profits that continue to be generated by private equity are too attractive to ignore, no matter what the conflicts. Speaking of conflicts, the Times points out that with the acquisition of Metalmark, Citi will be managing some assets still owned by its rival, Morgan Stanley.

In another sign that the big banks and brokers are getting back into private equity, as well as the growing influence of executives trained in the world of private equity, Morgan Stanley announced today that it has hired two new directors for its global private equity arm. Andy Shinn, who worked for the Carlyle Group, and Aaron Sack, from Apollo Advisors, will join Morgan Stanley as executive directors.

Look at the history of Wall Street and you will see a major theme: conflicts of interest. After all, the business is based on relationships.

Conflicts of interest are not necessarily bad. So long as there is disclosure – and clients understand the dynamics – it should be fine.

But, there should still be vigilance. That's the take from a recent piece in the New York Times.

In fact, with the surge in private equity deals, it's getting tough to see who's representing who.

Perhaps the biggest issue is when investment banks engage in their own deals and also advise the client. This is actually becoming common for firms like Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), and Merrill Lynch (NYSE: MER)

But in this scenario, is the client really getting good advice? Or is the investment bank just trying to get a juicy deal?

One way to manage this has been for investment banks to invest alongside others. Thus, there would be no control position.

But with Goldman raising a $20 billion fund and other investment banks in the process of forming mega funds, is this realistic?

In other words, investment banks are going to start looking more and more like private equity funds – that, incidentally, provide advisory services.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.