Fortress becomes first public hedge fund

Fortress becomes first public hedge fund

	Published : Fri, 09 Feb 2007 02:11 By : Agencies Print this Story

NEW YORK (AFX) - Wall Street will get its first taste of a publicly traded hedge fund Friday when Fortress Investment Group LLC sells shares in an initial public offering valuing the alternative asset manager at $7.38 billion.

The New York-based funds of funds, which manages $29.9 billion in assets, is the first of its kind to go public in the United States. Some funds, such as Man Group, RAB Capital and BlueBay Asset Management, are publicly traded in Europe, but Fortress Investment Group will test the U.S. public market's appetite for hedge funds.

In a sale underwritten by Goldman Sachs and Lehman Brothers, Fortress Investment Group sold 34.3 million shares at $18.50 per share, the top of the $16.50 to $18.50 per share range anticipated in the fund's prospectus.

Hedge funds, which are loosely regulated investment partnerships catering to rich people, have exploded in the past few years. In the U.S., there are roughly 6,000 hedge funds managing almost $1.3 trillion.

'The feeding frenzy is still going on,' said A.C. Moore, chief investment strategist at Dunvegan Associates Inc. in Santa Barbara, Calif.

Moore said it may have taken so long for a U.S. fund to go public because most hedge funds are small investment partnerships with no need to sell stock or access capital markets. A hedge fund finally going public suggests they are looking for new ways to raise money, he said.

With $29.9 billion in assets under management, Fortress Investment Group is part private equity group and part hedge fund. Its private equity funds try to buy controlling stakes in companies in North America and Western Europe, take them private, and later 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 the funds can buy cheaply. The funds make money by charging a fee to manage investments and by skimming part of the profit as a performance fee.

The company earned $192.7 million in 2005, up from $114.5 million in 2004.

Fortress Investment, which will trade under the ticker 'FIG' on the New York Stock Exchange, also manages two publicly traded real estate investment trusts: Newcastle Investment Corp. and Eurocastle Investment Ltd., which have a combined market value of $3 billion.

This IPO sets an important precedent, said Perrie M. Weiner, international co-chairman of securities litigation at the law firm DLA Piper.

'A lot of hedge fund management firms have been thinking about this for quite a while, but it always takes the first one to step up and do it,' he said. If Fortress Investment Group's stock performs well, Weiner said 'you can bet there will be a flurry' of other hedge fund IPOs.

Weiner compared the pent-up demand for hedge funds to demand for technology stocks in the late 1990s. He said Wall Street could see 20 hedge fund IPOs in the next two years.

A publicly traded hedge fund is good for the fund as well as investors, Weiner said. It's difficult to invest in hedge funds because they generally take investments only from rich people. This stock will give 'the average Joe on the street' a chance to invest in a hedge fund, he said.

Going public also gives hedge funds the opportunity to tap the market for money to invest and use its stock to attract talented employees, he said.