Fortress execs hit $10 billion jackpot
In the country's first public offering of a hedge fund, the stock price soars - turning the fund's owners into some very rich men.
NEW YORK (CNNMoney.com) -- New York-based Fortress Investment made history Friday as the first hedge fund in the country to go public - and delivered nearly $10 billion in value to its five principals in the process.
Shares of Fortress Investment (up $12.50 to $31.00, Charts) spiked in their first day of trading, giving the firm the best first-day pop for an IPO so far this year, according to deal tracker Dealogic, and a market capitalization of about $12.4 billion. Fortress raised $634 million in its stock debut.
While the leaders of Fortress didn't pocket any of the proceeds from the sale of Class A shares in the IPO, they hold all of the company's voting Class B shares - or about 78 percent of the company's total outstanding shares.
The principals can exchange one Class B share for one Class A share at any time, according to the company's filings with the Securities and Exchange Commission. At Fortress's $18.50 offering price, the Class B shares collectively held by the fund's managers were worth about $5.8 billion.
But the hedge fund's managers saw the value of their stake in the company balloon in one day as the company's stock price soared 68 percent during its market debut. Fortress's stock closed at $31 a share on Friday, boosting the value of the principals' stake to $9.7 billion.
Started in 1998 by Wesley Edens, Robert Kauffman and Randal Nardone, Fortress manages about $30 billion in assets. The company made headlines in 2005 when it acquired more than $200 million in loans that Bank of America had made to pop star Michael Jackson, who was then on trial for alleged child molestation (Jackson was acquitted). The loans that Fortress bought were secured by Jackson's 50 percent stake in the Beatles music catalog.
The firm's young managers - nearly all of the five principals are under the age of 50 - held posts at some of the investment world's most lauded firms, including Goldman Sachs and BlackRock, before Fortress.
Chief executive Edens, 45, owns nearly a quarter of the company's Class B shares. His stake would be worth about $2.3 billion if converted into Class A shares late Friday.
Presidents Michael Novogratz, 42, and Peter Briger, 43, each own about 20 percent of the outstanding Class B shares. If exchanged for Class A shares, that holding would be worth about $2.1 billion each.
Kauffman, 43, and Nardone, 51, each hold 17 percent of the company's Class B shares. Those holdings would be worth about $1.6 billion if exchanged for Class A shares.
If any of the principals leave Fortress within five years of the IPO, a portion of their Class B shares will be forfeited, the filings said.
The company's IPO was the biggest this year on the New York Stock Exchange. Its stellar debut is expected to trigger a wave of IPOs from alternative asset managers.