Fortress Investment Group protects its investments. The global investment firm manages private equity and hedge funds for institutional investors, wealthy individuals, and on its own behalf. Its private equity arm buys long-term, controlling stakes in undervalued or distressed companies and credit assets; it also manages real estate investors Newcastle Investment and Eurocastle Investment. The hedge fund arm invests in liquid markets. Fortress offer traditional asset management through Logan Circle Partners. Fortress earns fees, performance-based incentive revenues, and investment income on its own investments. The firm has more than $62 billion in assets under management (effective April 2014).
Formerly focused solely on alternative investment vehicles, Fortress diversified in 2010. It entered the fixed income asset management business when it acquired bond investor Logan Circle Partners. The deal added some $12 billion in assets under management; and allowed Fortress to begin offering its clients a broader range of investments. Now Logan Circle is considered Fortress' traditional asset management arm. It is focused on the organic growth of its existing fixed income business.
Fortress in late 2013 agreed to buy more than 50 senior-housing properties from Holiday Acquisition Holdings for more than $1 billion. It anticipates that rent for the portfolio of 5,885 units will equal 6.5% of the purchase price.
In the private equity segment Fortress is known as a garbage collector of sorts; picking up the pieces of companies and assets that no one really wants. Fortress has taken advantage of opportunities to buy bargain assets from troubled firms during the economic downturn. In 2010 alone, it purchased the European mortgages and operations of Ally Financial subsidiary ResCap, including some 6,000 good and bad loans; and about 80% of consumer lender American General Finance from AIG. Fortress also acquired commercial real estate loan servicer CW Financial Services in the hopes of profiting from a recovery in the US real estate market. It then purchased a $7 billion distressed portfolio of life settlement insurance policies from KBC. Fortress is eyeing new investments in the transportation, senior living, and financial services sectors.
In addition to buying assets, Fortress also has been selling. Improvements in the equity markets have allowed Fortress Private Equity to spin off a few of its portfolio companies through IPOS. Nationstar, SeaCube Container Leasing and RailAmerica recently entered the public markets. Fortress also has sold its positions in other publicly traded securities as the market improved. The proceeds helped Fortress refinance exisiting debt and obtain other debt financing.
The firm's growth strategy is centered on global expansion. Fortress, which was founded in 1998, has 15 offices in North America, Europe, Australia, and Asia. Most recently Fortress has grown in Asia. It has launched new private equity funds there and opened new offices in Singapore and Shanghai.
Fortress weathered the recession and in 2010 it reported strong results thanks to its diversification efforts and improved incentive fee income based on better fund performance. It has been raising capital across all of its funds and, in 2011, invested in the regional aircraft asset management operations of defense manufacturer BAE Systems. The deal included 151 regional aircraft and is valued at $187 million.
However, market volatility had an impact on Fortress' performance in 2011. Revenues declined by nearly 10% due to lower incentive income and a decrease in other revenues. Profits also declined. But Fortress is focused on the long term. Despite the challenging market, the company continued to attract new capital commitments and new clients thanks to its diversified business model. In 2011 Fortress invested more than $3.5 billion on its investors' behalf and began marketing new funds in each of its business lines.
In addition to the challenging market, Fortress' walls have been shaken by personnel troubles. Former CEO and board member Daniel Mudd resigned from Fortress in early 2012 while fighting SEC allegations that he'd misled investors during his prior position as CEO of Fannie Mae. The SEC alleged that Mudd hadn't sufficiently disclosed Fannie Mae's risky investments in the subprime market leading up to the housing crash. Mudd had taken the helm of Fortress in 2009, shortly after being ousted from Fannie Mae. Mudd took a leave of absence in late 2011 but stepped down a month later to dedicate his time to the lawsuit.
Fortress' core principals and founders remain at the helm. Co-chairmen Peter Briger and Wesley Edens each own around 13% of the company. Principal and director Michael Novogratz owns more than 12% of Fortress. While interim Interim CEO Randal Nardone and principal and director Robert Kauffman each own about 10%