In a First, Hedge Fund Launches on NYSE
Saturday, February 10, 2007
NEW YORK, Feb. 9 -- Fortress Investment Group became the first hedge fund to be traded publicly in the United States, and its shares soared Friday in a debut that's expected to catch the attention of many in the $1.3 trillion hedge-fund industry.
The stock's initial public offering was priced late Thursday at $18.50 per share and rose as high as $37 in morning trading on the New York Stock Exchange. It closed at $31, up $12.50, or 67.6 percent.
While a number of hedge funds have gone public in Europe, Fortress, which trades under the symbol FIG, is the first to do so in the United States. Investors viewed the IPO as a test case to determine whether other hedge funds will follow.
"The best hedge funds are watching this stock trade, tick by tick," said Scott Sweet, managing partner of advisory firm IPO Boutique, outside Tampa. "Had this not done as well, it would have obviously put a crimp in future hedge funds coming public."
Goldman Sachs and Lehman Brothers, which underwrote the IPO, set the $18.50 share price late Thursday, valuing Fortress at almost $7.4 billion. The pricing implies Fortress raised nearly $635 million before expenses for an 8.6 percent stake in the company.
Hedge funds, which are loosely regulated investment partnerships catering to rich people and institutional investors, have exploded in the past few years. In the United States, there are roughly 6,000 hedge funds.
Fortress, which manages about $30 billion of clients' investments, is part private equity manager and part hedge fund. Its private equity funds try to buy controlling stakes in companies, take them private, and then sell them at a profit.
Meanwhile, the company's hedge funds seek to profit off discrepancies in financial markets and troll for troubled stocks or loans to buy cheaply.
Fortress earns money a few ways. Roughly a third of the company's revenue comes from investment fees. Perrie M. Weiner, international co-chairman of securities litigation at the law firm DLA Piper, said hedge funds typically charge 2 to 3 percent of assets under management. They also take 20 to 30 percent off the profit generated from the investments.
In the first three quarters of 2006, Fortress charged $255 million in management and performance fees, according to a filing with the Securities and Exchange Commission.
The remaining two-thirds of the company's revenue comes from dividends and interest on stocks, bonds and other investments in the funds' portfolios. In the first nine months of last year, Fortress booked $810.4 million in revenue from interest payments and dividends.
In 2005, the company earned a profit of $192.7 million, up 68 percent from 2004.