Wesley Edens may soon find out if his Fortress Investment Group is made of sand or stone.
Back in October, Edens quipped that he’d consider taking his publicly traded investment firm private if its share price dropped to a buck. The comment was a joke meant to break the ice at a private event for Fortress clients at the Midtown Mandarin Oriental Hotel.
However, now with the investment-management company’s shares closing Friday at $1.76, down nearly 90 percent for the year, Fortress’ performance is no longer a laughing matter.
Eden, who lives in a posh apartment building on Central Park West and vacations on Martha’s Vineyard, was heralded for running a tight ship but that ship – many believe – has sprung a few leaks.
Lately, Fortress has been taken to task for going too far too fast into opportunistic investments.
Last week, Fortress’ clients slammed the firm, requesting to withdraw roughly $4.5 billion out of its Drawbridge Global Macro funds and a Special Opportunities Fund after both suffered biting losses.
The move may have further eroded confidence in Fortress, which is being simultaneously buffeted by losses in its hedge-fund business and its private-equity platform during one of the worst economic downturns in recent record.
Edens, a 47-year-old former BlackRock and Lehman Brothers executive, helped found Fortress 10 years.
The firm ballooned from a modest-investment house with $1.2 billion as of Dec. 31, 2001 to a power player that would lift the shroud of secrecy surrounding hedge funds and buyout shops by going public last year with more than $26 billion in managed assets.
Fortress’ public debut launched at $18.50 at the height of the stock market boom last February ushering in a new wave of fund-manager IPOs that would see rivals Stephen Schwarzman’s Blackstone Group and Och-Ziff Capital follow suit.
Still there are some that say that Fortress’ move to enter the limelight hasn’t translated into more disclosures about how it runs its business.
“Fortress in particular still runs like it’s a hedge fund or private-equity firm,” said Jackson Turner an analyst who covers the company and who says Fortress has been a lot less open than peers like Blackstone and Och-Ziff.
Turner says that Fortress’ insular nature is even reflected in the quality of their earnings. “They don’t give you a lot of information about how they’re valuing investments. They want you to put a lot of reliance on their methods,” he said.
People close to Fortress deny that claim and note that it’s been one of the more forthcoming of its alternative-investment management peers.
On the investment front, Fortress also has been maligned for trying to cherry pick value assets and plucking mortgages and distressed securities too early as market values continued to plummet.
Despite the growing carnage in the market, Edens’ view is that opportunities abound.
“This is the type of environment that will eventually create enormous opportunity,” Edens noted during Fortress’ third-quarter earnings call.
What’s helped to buffer Fortress from imploding is that despite the mark-to-market losses it’s likely facing within its private-equity business, the firm has shrunk its short-term liabilities by refinancing the lion’s share of its debt to 2011, notes one person familiar with the situation.
It has much of its fund money locked up an average of nine years, which should help block skittish investors from rushing to the exits.
One of Fortress’ current initiatives is trying to boost its assets under management by raising fresh capital. However, Fortress’ biggest challenge is trying to convince new investors that the timing is right.
First, Edens will have to ease the fears of a lot of fretful investors. “They’ve got a lot of repair work to do on client relationships,” said Roger Freeman, Barclays Capital financial analyst.