Insert Fortress pun here

10Feb07

No, we didn’t forget to write a real title for this post. We simply got tired of reading all the Fortress-inspired pun-filled headlines. Then again, can you blame the headline writers?

The story of the day, let alone the week, is the initial public offering of shares in Fortress Investment Group (FIG), a manager of hedge funds and private equity funds. The expansion of hedge fund techniques into vehicles available to individual investors is already underway under the guise of ‘hybrid funds.’ As we noted when the deal was first filed Fortress represents another manner in which individual investors can get in on the alternative investments boom.

Let’s look at the coverage of the deal, and the reaction of commentators to the deal.

The Deal:

A trio of writers at the Wall Street Journal have a summary of the deal.

Bess Levin at DealBreaker.com pulls together a number of items on the IPO.

Elizabeth Hester and Jenny Strasburg at Bloomberg.com discuss the valuation and how individual investors can now get a piece of a hedge fund operator.

Alistair Barr at Marketwatch.com on the stock’s first day rise and the expectations it sets for the future of the company.

Matt Kranz at USA Today with a short summary of the deal including some potential risks.

DealBook recaps the deal and looks forward to what the future might hold for Fortress shareholders.

Jim Mahar at FinanceProfessor.com views the Fortress deal as a “must talk about case” for use in all of his classes.

Did you know that Fortress was in the media business via one of the private equity holdings? (via BusinessWeek.com)

The Backlash:

Barry Ritholtz at the Big Picture passes along an item by Doug Kass on the “Fortress Top.”

On the other hand, Chad Brand at the Peridot Capitalist does not think that the Fortress IPO represents a top for the hedge fund industry.

Roger Ehrenberg at Information Arbitrage has been on the Fortress story from the beginning is (highly) skeptical of its current valuation.

The Financial Times on the “house of cards” that is Fortress’s premium valuation.

Eddy Elfenbein at Crossing Wall Street wonders “…how anyone can properly analyze this company.”

FT Alphaville on the health of the markets, and how Fortress is yet another example of a company selling a small stake with limited voting rights.

DealBook on moves afoot in the hedge fund-heavy state of Connecticut to increase regulation.

Carter Dougherty at the New York Times on the G-7’s move to enhance oversight of hedge funds.

Conclusion

It is hard to believe that Fortress after a 67% rise on its first day of trading remains a “bargain.” Given the stock market’s reception to the IPO we should not be surprised to see investment banks pushing a flood of copycat deals for alternative investment mangers to market, post haste. This will represent a mixed blessing. On one hand investors (and traders) alike will have a broader pool of investment opportunities. On the other hand these firms are not likely to come at anything resembling “fair” valuations.

One point we have not seen discussed is whether public ownership will change the way Fortress, or any other newly public hedge fund manager, manages money? You could imagine scenarios in which taking on more (or less risk) would be attractive in light of the needs of a public company. In either event, the investors in the underlying fund may very well suffer. This is not a novel risk, but it could be enhanced by public ownership.

Today, hedge fund managers are believed to be the “smart money” that moves the market. That begs the question, if they, and others, are selling, should individual investors be buying? Patience (and prudence) would probably dictate waiting for a good, old-fashioned market shakeout to bring the price of these newly public managers back down to earth. Then again, we could be flat wrong. Nobody said the investment game was easy…

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