When Wes Edens faced the Oregon Investment Council in December, he undoubtedly expected a grilling.
Performance on Fortress Investment Group’s latest vehicle, Fortress Fund V, was an exceptionally poor 0.44x since inception to 30 June 2009, compared to a promised 2x multiple and 20% IRR, while other funds under the Fortress umbrella were also suffering from the downturn.
As he explained when he started the almost hour-long discussion: “The last couple of years have been a salty couple of years on a lot of levels.”
If you have faith that we will come back and we are paying fees on committed capital, not what it’s worth today, will you be willing to defer part of your fees?
Katy Durant, chair of the OIC, asked Fortress' Wes Edens during the investment committee meeting
It’s something most LPs are pushing their managers for, not least following a period of below-average performance.
According to people familiar with the matter, Oregon is working with its advisors and Fortress on the issue. “If you have faith that we will come back and we are paying fees on committed capital, not what it’s worth today, will you be willing to defer part of your fees?” Katy Durant, chair of the OIC, asked Edens during the investment committee meeting. Edens responded that he was “open to a discussion”.
But Edens does have faith in his funds. Although he admitted Fund V, which, along with a co-investment vehicle, closed on $5 billion, wouldn’t achieve a 2x multiple (something he said he was “crazed about”), Edens did insist Funds II, III and IV would “very likely be good funds”.
“When I say good funds, our investment objective at the beginning of these funds is always to give people back two times your money at a 20-plus percent retruns and that is a little bit off from where Funds III and IV are right now … My goal is still for you to get 2-plus times your money, I think on a couple of these funds that’s very likely.”