Fortress Investment Group announced a larger-than-expected loss of $140m and an 11 per cent drop in assets under management in another indication of how hard alternative investment firms have been hit by the meltdown in financial markets.
The firm reported on Monday losses across its leading business lines, its private equity operation, and its credit and macro hedge funds.
The drop in assets under management to $29.5bn reflects a combination of a drop in the value of investments and redemptions.
The loss of $140m, or $1.50 a share, for the most recent quarter compared with a loss of $29m, or 43 cents a share, for the comparable period last year.
For the year, Fortress reported an impairment on the value of its private equity portfolio of $287m and said it had set aside reserves for possible clawbacks.
In a call with investors, Wes Edens, Fortress founder, said the firms that Fortress had invested in, whose activities ranged from apartment buildings in Germany to a railroad in Florida, are asset rich and have steady cash flows.
Those assets had been the target of financial engineering as Fortress securitised the cash flows from some of these investments – but such transactions are virtually dead in the wake of the financial crisis.
Fortress’ flagship credit fund lost 26 per cent of its value last year, the first negative year in the fund’s history, while what was once its high-flying macro fund dropped 22 per cent on a net basis.
“Virtually anything that was bought last year was bought too soon,” Mr Edens said.
So far in 2009, though, all the Fortress hedge funds were up, he added.
In recent months, Mr Edens has slimmed down his operation with only a handful of portfolio managers surviving a drastic restructuring.
Mr Edens spent much of the call with investors describing the opportunities that he anticipates this year as the government tries to lure private capital into troubled financial institutions and the troubled assets on the balance sheets of the banks – both of which would be of interest to Fortress.
The US Treasury’s asset backed lending facility, or talf, is likely to encourage investors to provide capital to issuers including student loan companies, car finance companies and credit card firms on attractive terms that could give these investors returns as high as the low twenties, Mr Edens said.
He added that the opportunity to buy legacy assets from the banks could also prove interesting.
Both Mr Edens and Pete Briger, co-founder of Fortress, were active during the days of the last financial crisis.
“But what is different now is the sheer scale of this,” Mr Edens said.
Fortress, which saw its shares drop below $1 in January amid concerns that it might be forced to delist, was trading up 9.9 per cent at $1.65 on Monday.