Those answering the phone at the office of Lilly H Donohue, managing director, Fortress Investment Group LLC, are under clear enough instructions: “I’m not aware we are authorised to release our prospectus to the media as yet. When the situation changes we will be sure to get someone back to you.”
Well, here it is if you want to download a pdf version, or go and root around the SEC yourself.
Once you get past the list of banks involved in the first public offering of stock in a global hedge fund management company on the New York Stock Exchange (Goldman Sachs, Lehman Brothers, Banc of America Securities, Citigroup, Deutsche Bank Securities, Bear Stearns, Lazard Capital Markets, Merrill Lynch, Morgan Stanley and Wells Fargo), you will come to the following:
“Assets Under Management…equals the sum of:
- the net asset value…of our private equity funds plus the capital that we are entitled to call from investors in the private equity funds..;
- the NAV of our hedge funds; and
- the market capitalization of the common stock of each of our publicly traded alternative investment vehicles, which we refer to as our Castles.”
And ….“We earn management fees pursuant to management agreements on a basis which varies from Fortress Fund to Fortress Fund (e.g. any of ”net asset value”, ”capital commitments”, ”invested equity” or ”gross equity”, each as defined in the applicable management agreement, may form the basis for a management fee calculation). “Our calculation of AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our AUM measure includes, for instance, assets under management for which we charge either no or nominal fees, generally related to our principal investments in funds as well as investments in funds by our principals and employees.
“Our definition of AUM is not based on any definition of assets under management contained in our operating agreement or in any of our Fortress Fund management agreements.”
This is very strange stuff. In fact it appears to be a truly unique, and endlessly flexible, definition of assets under management.
And what’s this about Fortress investment vehicles, “which we refer to as our Castles…”
Are Wes Edens and the other principals behind a business that is expected to achieve a value of close to $7bn on flotation, serious here? We assume so, because the prospectus then runs on for another 322 pages, of which “risk factors” account for a rather succinct 25 pages.
There can be little doubt that Eden et al will achieve or better the top-of-the-band pricing of $18.50-a-share. Aside from the fact that 10 banks are on the sales job, there is also the little fact that just 8.6 per cent of Fortress is being sold to the public.
The principals (Peter Briger, Robert Kauffman, Randal Nardone and Michael Novogratz, along with Mr Edens) will retail 77.7 per cent, while Nomura has already agreed to take a 15 per cent stake. Other so-called insiders hold the balance.
But will ordinary investors be offered a barrow load of extra shares once public trading gets underway?
Probably not. Aside from lock-in arrangements, the principles have already trousered some spending money: $447m was distributed to the five principals when Nomura took bought in.
As of end-September 2006, Fortress had $30bn under management — or about half that managed by London-listed Man Group.
Look and weep, Stanley Fink.
Prospective investors in Fortress might visit the fund manager’s website, although a note at the bottom says it is still under construction.