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Geithner plan ‘euphoria’ sends US-listed funds soaring

Fortress shares doubled after the US Treasury outlined plans this week to buy up to $1trn in toxic assets by combining public and private equity. Blackstone and Och-Ziff have also seen their stocks rise.

Shares in the Blackstone Group, Fortress Investment Group and Och-Ziff Capital Management have significantly increased in value since the US Treasury on Monday said its plan to unfreeze the credit markets would rely heavily on private sector capital. 

Blackstone’s units surged from a $6.95 per unit opening price on Monday to close Tuesday at $7.81 per unit; shares were trading at around $8.57 on Wednesday, up 23 percent from Monday’s opening price.

Fortress, whose shares dropped below $1 for the first time in December, saw its stock price jump from $1.53 per share Monday to $3.12 per share in early trading Wednesday. It was trading at $3.05 per share at press time, up 99 percent from its Monday opening price.

Meanwhile, Och-Ziff Capital Management’s share price increased from its $6.11 opening price on Monday to $6.63 per share in early trading Wednesday – a 8.5 percent increase.

Under the Treasury plan, the government will use up to $100 billion from the Troubled Asset Relief Programme and capital from private investors to buy real estate loans on bank balance sheets and securities backed by loan portfolios. The plan is expected to generate $500 billion of buying power and could expand to $1 trillion over time. Private investors who wish to buy pools of loans will be able to do so with as much as 6-to-1 government leverage and 50 percent matching equity. The five-or-so managers the government will select to buy legacy securities will get up to $3 of government co-investment and debt for each $1 in equity they invest.

Such public-private partnerships aimed at re-starting private capital flows to the marketplace are “tremendous opportunities for investors”, Wes Edens, chairman of Fortress Investment Group, said during a recent earnings call. “We have had very active dialogue with the government on a number of different levels regarding their initiatives with respect to … legacy assets and the like.”

The listed firms experienced jumps in their share prices after the plan was announced, but one analyst, Robert Lee of Keefe, Bruyette & Woods, downgraded Blackstone from a “buy” designation to a “hold” rating Wednesday. “The sharp run-up in [Blackstone’s] price over the past several days, fueled in part, we believe, by euphoria over the Treasury’s Public Private Investment Fund proposals, coupled with the still challenging outlook, makes the units less compelling at this time,” Lee said in an analyst report.

Blackstone, Fortress and Och-Ziff’s share prices have been battered in the financial crisis. Fortress watched its share price drop below $1 for the first time last year, while Blackstone’s shares hit an all-time low of $3.55 earlier this year. 

In December, Alan Rambaldini, an analyst with Morningstar, said Fortress’ management could elect to take the firm private if the share price continued to plummet.