Fortress Investment Group will become the first big alternative asset manager to float a portion of itself on the stock market tomorrow, in a public offering that is likely to value the firm at about $7 billion (€5.4 billion).
According to the Financial Times, demand for the shares has been “insane and ridiculous,” as investors clamor to participate in the offering. Fortress is listing about 8 percent of itself on the New York Stock Exchange, and the paper reports that the deal is now up to 25 times over-subscribed following a week-long roadshow.
The consortium of banks running the flotation process, led by Goldman Sachs and Lehman Brothers, now face the difficult task of allocating the available shares.
Fortress was wholly owned by its five principals until last month, when it sold a 15 percent stake to Japanese broker Nomura. This yielded a return of about $888 million for the principals: Peter Briger, Wesley Edens, Robert Kauffman, Randal Nardone and Michael Novogratz. After the public offering, these five will still control 77.7 percent of Fortress.
In its offer document, Fortress said it was going public so it could offer additional financial incentives to staff, improve its standing with investors to yield bigger allocations, raise fresh capital and provide access to equity securities that could finance future deals.
Fortress had $29.6 billion of assets under management at the end of September 2006. Since the end of 2001, when it had $1.2 billion under management, the group has grown assets at a spectacular annual growth rate of 96.8%. It now has $17.5 billion invested in private equity, plus $9.4 billion in hedge funds and $3 billion in real estate and related debt securities.
If Fortress does prove to be popular with investors, it is likely to arouse the interest of other big US private equity and hedge fund managers. The FT reports that The Blackstone Group, Kohlberg Kravis Roberts, The Carlyle Group, and Citadel are four of the firms watching the flotation closely.