17 May A Force of Innovation: Two Decades of Fortress Investment Group
U.S. Immigration Fund is proud to be a partner with Fortress Investment Group on their project TSX (formerly known as TSQ Broadway) in Times Square, NYC.
From the moment of its formation in 1998 — when it was founded as a private equity firm — Fortress Investment Group has been a trendsetter.
From the moment of its formation in 1998 — when it was founded as a private equity firm — Fortress Investment Group has been a trendsetter. This was highlighted by its2007 initial public offering (IPO), when it was the first large-scale private equity firm to go public on the New York Stock Exchange (NYSE).
Today, Fortress is a diversified global investment management firm that directs over $43 billion of assets for over 1,750 investors in private equity, permanent capital vehicles, and hedge funds. Its strategy is one of “strong risk-adjusted returns” for investors over the long term. Headquartered in New York, it employs over 900 people.
Its three principals are New York-based Randal Nardone and Wes Edens and San Francisco-based Peter Briger.
The core areas of expertise that Fortress Investment Group specializes in include:
- asset-based investing
- operations management
- corporate mergers and acquisitions
- capital markets
- sector-specific knowledge of companies and institutions
Its asset-based investments — via private equity and credit funds — are made up of a broad diversity of assets, including real estate, capital, and financial vehicles that create long-term cash flow. The company has significant expertise in pricing, owning, financing, and managing both physical and financial assets.
In the area of operations management, Fortress Investment Group has developed robust tools for extracting value from the highly intricate investments it makes. It excels at evaluating operational, structural, and strategic “facts on the ground” when managing its portfolios.
Over its two decades in existence, Fortress Investment Group has developed deep expertise in managing mergers and acquisitions. Its personnel both understand and have relationships with a wide range of corporate board members, management professionals, and other corporate stakeholders.
This experience also means that Fortress Investment Group is a specialist company with regards to capital markets. It has significant expertise in securing financing via debt and equity markets.
Finally, Fortress Investment Group’s long track record of managing portfolio companies has given it a great deal of institutional knowledge concerning a wide variety of industries. Its employees include many who possess substantial sector-specific know-how that is global in scope.
Fortress Investment Group was founded by Randal Nardone (current principal), Wes Edens (current principal), and Rob Kauffman (retired in 2012). The founders brought with them deep financial experience from positions at Lehman Brothers, Goldman Sachs, BlackRock Financial Management, and UBS.
Their goal was to create a new type of investment firm, an “alternative-asset” strategy that raised private equity and invested it into cutting-edge vehicles. Their assets under management grew quickly — from $400 million to approximately $3.9 billion — over its first five years. By 2007 assets were $32.6 billion.
The company launched its first investment vehicle — the Fortress Investment Fund I — in 1999. Some of its earliest investments were in real estate, including the New York and Toronto markets. It quickly expanded into debt securities and hedge funds. Fortress Investment Group was a success from the outset and grew at a brisk pace, with its private equity funds growing by nearly 40 percent from 1999 to 2006.
While Nardone and Edens are still deeply involved in running Fortress Investment Group, after 15 years Kauffman decided to focus on one of his life-long interests, car racing. He bought a 50 percent stake in Michael Waltrip Racing, which competes on the NASCAR circuit. He also founded RK Motors Charlotte, which restores vintage “muscle cars.” He’s gone on to drive in a number of prestigious races — including the 24 Hours of Le Mans and 24 Hours of Daytona — and is now part owner of Chip Ganassi Racing, which fields cars in a number of racing series, including the IndyCar Series.
The first decade of Fortress Investment Group’s existence — culminating in its initial public offering (IPO) — were dramatic and hard-driving. By 2006 it had expanded its first Fortress Investment Fund I with versions II, III, and IV. Also coming online were the Fortress Partners Fund, the Long Dated Value Funds, the Drawbridge Special Opportunities Fund, the Drawbridge Global Macro Fund, and the Fortress Brookdale Investment Fund.
In 2002, Fortress Investment Group added two key players to its core leadership.
Michael Novogratz came on board from Goldman Sachs as a fund manager and continued in that role until leaving Fortress Investment Group in 2015 to turn his attention to other interests, including the fast-developing cryptocurrency sector.
In addition, Peter Briger also joined as a principal, a position he still holds. He brought 15 years of experience from Goldman, Sachs and substantial understanding of — and connections to — the Asian financial sector and its leadership.
In 2006–2007 Fortress Investment Group made several key acquisitions, including the largest ski resort operator in North America, the Canadian company Intrawest. Also purchased were RailAmerica, Florida East Coast Industries (which owned Florida East Coast Railway), and Penn National Gaming (which operated casinos and horse racing venues).
After the two new principals came on board and the run of acquisitions, Fortress Investment Group continued to grow, culminating in its big splash of 2007. By offering its stock with an IPO, Fortress Investment Group took the financial center stage. As CNBC reported at the time: “Fortress Investment Group is the first hedge fund in the United States to launch an IPO, opening the high-priced — and high risk/reward — world of hedge funds and private equity to the individual investor … The deal brings the company out of the private, and some would say, opaque world of private money, inviting a level of transparency and scrutiny many private equity or hedge fund managers shun.”
Being the first such company to go public raised Fortress Investment Group’s profile significantly. It was the first alternative-asset investment firm to make the move. Soon after Fortress Investment Group led the way other firms followed, with the Blackstone Group going public four months later. Och-Ziff Capital Management Group, KKR & Co., Apollo Global Management, Oaktree Capital Group, the Carlyle Group, and Ares Management followed suit within the next year or so.
After the IPO, Fortress Investment Group continued to increase its investment vehicles. Over the next decade the Fortress Investment Fund V, the Credit Opportunities Funds I through IV, the Fortress MSR Opportunities Funds I and II, the Fortress Real Estate Opportunities Funds I and II, the Worldwide Transportation and Infrastructure Fund, the Asset-Based Income Fund, and the Intellectual Property Fund all came online.
In addition, Fortress Investment Group began adding internationally focused funds to its portfolio, including the Italian NPL Opportunities Fund and a number of Asian-oriented funds, which concentrated on Japan. These included the Fortress Japan Opportunity Fund (its first Yen-denominated fund), the Fortress Asia Macro Fund, a second and third Japan Opportunity Fund, and the Japan Income Fund.
In 2010, Fortress acquired AIG’s American General Financial Services, which would go on to become Springleaf Financial Services. Its value skyrocketed under Fortress’s umbrella, gaining more than 27 times in value to $3.5 billion.
Other companies involved in acquisitions or partnerships included D.B. Zwirn & Co., Logan Circle Partners, Graticule Asset Management Asia, and Mount Kellett.
In addition, in 2011 Fortress Investment Group opened a second U.S. headquarters in San Francisco and two in Asia, in Shanghai and Singapore.
Fortress Investment Group’s leadership began to be widely recognized at this time for its innovation and success. Institutional Investor magazine awarded it the “Credit-Focused Fund of the Year” in both 2010 and 2011 and the “Discretionary Macro-Focused Hedge Fund of the Year” in 2012. The leading publication in the alternative-investment industry, HFMWeek, named Fortress “Management Firm of the Year” in 2014, the same year that Institutional Investor named it “Hedge Fund Manager of the Year.”
Purchase By Softbank
Finally, in 2017 — a decade after being the first alternative-investment firm to go public — it was the first to be bought.
At a price of $3.3 billion, the SoftBank Group Corporation — a Japanese multinational with headquarters in Tokyo — bought Fortress, which continues to operate as an independent entity with its headquarters in New York. Briger, Edens, and Nardone stayed on as principals.
In a communication with their employees at the time of the purchase, they wrote: “Ten years and a week ago we were the first alternative manager to go public. Now we are embarking on a new path — although similar to our original mission in many respects, we now embrace the opportunities and challenges of a worldwide market by joining forces with SoftBank.”
Fortress’s new owner is focused on developing a leadership position in the unfolding information revolution. It manages a global portfolio that is heavily weighted towards companies in advanced telecommunications, Internet services, artificial intelligence, smart robotics, the Internet of Things, and clean-energy technology.
Its SoftBank Vision Fund is dedicated to investing and supporting “the next stage of the Information Revolution.” The purchase of Fortress was a strategic move to add investment expertise to the management of its flagship investment fund. The all-cash purchase of Fortress was SoftBank’s first significant direct investment in asset management.
A former senior executive at Fortress, Rajeev Misra, was hired by SoftBank in 2014 as head of strategic finance. He manages the Vision Fund, which has close ties to Saudi Arabia. It is one of the world’s largest private equity funds and is the major backer for what is planned to be the largest solar power generation project in the world — a 200-gigawatt facility to be built in the Saudi desert that is 100 times larger than any other solar project currently in development.
Its previous history of investing in Japanese assets was certainly a factor in the Fortress acquisition deal. JP Morgan Securities and Morgan Stanley were involved in the transaction as financial advisers and the Special Committee of Fortress’s Board of Directors received advice from Evercore.
Fortress Investment Group is expected to continue its leadership in the alternative-investment field. In their in-house communication to their team about the buyout, the principals continued: “When we began the firm nearly 20 years ago, we were a small company of 28 people and $400 million in capital. Today, we employ 1,100 people in 15 offices around the world managing over $70 billion in AUM [assets under management] … Rather than a ‘cash out’ for us, this in a real sense is a ‘cash in.’ We have never been more excited about the prospects for our business and with this transaction will once again be left to pursue our investment businesses as a private enterprise.”
Currently, Fortress Investment Group’s operations are segmented into three principal categories, its Credit, Private Equity, and Permanent Capital Vehicles divisions.
The Credit division was launched in 2002 and is led by Briger. It is comprised of the Drawbridge Special Opportunities Funds, Fortress Credit Opportunities Funds, Fortress Japan Opportunity Funds, Fortress Real Estate Opportunities Funds, Fortress Japan Income Fund, Drawbridge Real Assets Funds, Drawbridge Long Dated Value Funds, and Fortress Secured Lending Fund. Investments are global in nature and concentrated on distressed and illiquid credit investments and undervalued assets. Dean Dakolias, who joined Fortress in 2001, is the co-chief investment officer with Briger.
The Private Equity division is focused on cash flow generation from control-oriented investments in the Caribbean, North America, and Western Europe and is led by Edens and Nardone. Operations are founded on Fortress’s experience in hands-on management of assets, especially in the financial services, transportation, energy and infrastructure, and healthcare sectors. Major holdings by Fortress include OneMain Holdings, Nationstar Mortgage Holdings, Florida East Coast Railway, Aircastle, New Fortress Energy, Global Signal, Holiday Retirement, and Brookdale Senior Living.
The Permanent Capital Vehicles division is dominated by the management of five publicly traded permanent capital vehicles, New Residential Investment Corp., Fortress Transportation and Infrastructure Investors LLC, New Senior Investment Group, New Media Investment Group, and Eurocastle Investment Limited. These entities focus on investment in residential real estate, transportation infrastructure, senior housing in the United States, local media assets, and real estate related assets in Italy.
The three principals of Fortress have been long established at the company and two were original founders. All were in place before and after the 2007 IPO and have chosen to continue in their roles after the purchase by SoftBank.
A founder of Fortress and member of the Management Committee since 1998, Randal Nardone has been its CEO since 2013 (after serving as interim CEO for over a year).
He also serves in important roles on a number of Fortress’s subsidiaries, including in leadership positions at Eurocastle Investment, FMA LLC, FIG LLC, FM Falstaff Advisors, Impac Commercial Holdings, Seacastle, Florida East Coast Railway, Newcastle Investment Holdings, and Springleaf REIT. He was named to Forbes Magazine’s World Billionaires List in 2007.
Prior to the founding of Fortress, Nardone was a managing director at UBS and a principal at BlackRock Financial Management. Earlier in his career, he was a partner at the law firm Thacher Proffitt & Wood.
He majored in both English and Biology at the University of Connecticut and earned his law degree at Boston University School of Law.
The other of the three founders of Fortress still with the company, Wes Edens is not only a leader in the world of finance but since 2014 has also been a professional sports owner. In 2014, with Marc Lasry, he purchased the NBA’s Milwaukee Bucks for $550 million. In addition, he’s also a backer of eSports as the owner of FlyQuest, a League of Legends team. It competes in the North American League of Legends Championship Series and is backed by Fortress.
Edens’ work at Fortress is primarily in the Private Equity division, which was the core business when Fortress was founded in 1998.
His investment approach is one with a high tolerance for complexity that seeks substantial returns from instruments under distress or in disfavor with the capital markets. Difficult or fluctuating environments are seen as an opportunity in which to leverage scarce funding for capital-intensive businesses. His readiness to take on complicated scenarios is the foundation of Fortress’s Private Equity division.
Prior to Fortress, he was a partner and managing director at both Lehman Brothers and BlackRock. He attended Oregon State University and majored in Finance and Business Administration.
After 15 years at Goldman, Sachs — including as a partner — Peter Briger joined Fortress in 2002. He oversees the Fortress Credit division, which focuses on credit and real estate business. He is a member of the Forbes 400, a listing of global business professionals.
His years at Goldman Sachs included membership on the Asian Management, Global Control and Compliance, and Japan Executive committees. His work focused on Asia, specifically real estate and debt vehicles. This background played a key role in Fortress’s purchase by a Japanese banking conglomerate.
He’s a member of the board of the Princeton University Investment Company and has been a strong financial supporter of the Central Park Conservancy. He’s also an active supporter of the non-profit Tipping Point, which serves low-income families in the San Francisco area, and is on the board of Caliber Schools, a network of charter schools.
He went to Princeton for undergrad and holds a master’s in Business Administration from the Wharton School of Business at the University of Pennsylvania.
Original Post: Patch