A Dilemma For Fortress As Hedge Funds Nudge Towards Full Profit Potential

By Hedge Fund Insight staff

The hedge fund business of Fortress Investment Group is nudging toward full profit potential five years after the Credit Crunch. Fortress’ reporting puts the hedge funds that take credit risk into a separate bucket from the others, so the award winning  Drawbridge Special Opportunities Funds comes under Credit Hedge Funds.  The Liquid Hedge Funds of Fortress Investment Group (FIG) consist of Fortress Macro Funds, Fortress Asia Macro Funds, Fortress Partners Funds and Fortress Convex Asia Fund.

The Liquid Hedge Funds of Fortress are having a good year – Fortress Investment Group LLCflows have turned positive ($645m in the last quarter) and returns have been good with two out of the three public funds up over 10% this year. AUM of $6.9 billion are at a four year high. By now most long term investors in the Fortress hedge funds are in a position to be potentially paying performance fees at  the end of the year.  Just over $5bn of the total assets managed in Liquid Hedge Funds are currently accruing performance fees.

The most profitable fund (in that all the assets are accruing fees) is the fast growing Asia Macro Fund. In the last year the fund has more than trebled in size to $1.8bn across the onshore, offshore and managed account versions. This puts Mike Novogratz, co-CIO of the macro funds in a dilemma. Does he set a precedent by giving Fortress Asia Macro Fund boss Adam Levinson the spin-out he has asked for? The two have worked together for 11 years, but Levinson has worked from Singapore for three years, having de-camped from New York. Fortress Investment Group has not to this point spun out a hedge fund – retaining an ownership interest in exchange for providing operational and other management support.

Granting the autonomy sought would allow FIG to retain some participation in the fastest growing hedge fund in the Group. But if Novogratz does not propose a deal that meets Levinson’s expectations the well-regarded Asia macro chief could fold his tent at Fortress and put it up elsewhere.  That would mean no fees at all to the quoted asset management company. Odds are that a deal will be cut.




The Incentive Eligible NAV Above Incentive Income Threshold for FIG Hedge Funds excludes sidepocket investments

Previous articles: The Hedge Fund Hot 100 – entry 34(Feb 2013)

Contrast Between Credit and Liquid Hedge Funds at Fortress (Nov 2012)

Fortress’ Logan Circle At The Tipping Point (Aug 2012)

Quotation of the Day – What is a Macro Manager? (Apr 2012)

Hedge Funds to Step Up In LBO Market in Europe (Feb 2012)