Fortress Investment Group

Fortress Investment Group is an American investment management firm based in New York City.[3] Fortress Investment Group LLC was founded as a private equity firm in 1998 by Wesley R. Edens, Rob Kauffman, and Randal Nardone.[4] When Fortress launched on the NYSE on February 9, 2007, it was the first large private equity firm in the United States to be traded publicly.[5][6] As of June 30, 2020, the firm manages approximately $45.5 billion alternative assets in private equity, liquid hedge funds and credit funds.[7]

Fortress Investment Group, LLC
TypeSubsidiary
IndustryInvestment Management Firm: Private Equity, Credit, Liquid Markets and Traditional Asset Management
Founded1998 (1998)
FounderWesley R. Edens
Rob Kauffman
Randal A. Nardone
Headquarters1345 Avenue of the Americas
New York City, United States
Key people
Wesley R. Edens (Principal and Co-CEO)
Peter L. Briger (Principal and Co-CEO)
Randal A. Nardone (Principal)
ProductsInvestment Management Firm: Private Equity, Credit Funds, Railroads, Hedge Funds and Traditional Asset Management
RevenueUS$1.1 billion (2016)[1]
US$180 million USD (2016)
Number of employees
2,533 (2016)[2]
ParentSoftBank Group
SubsidiariesAircastle (15.7%)
Railroad Acquisition Holdings
Brookdale Senior Living (9.48%)
Holiday Retirement
Websitefortress.com

History

1998–2010

Fortress Investment Group LLC was founded as a private equity firm in 1998 by Wesley R. Edens, a former partner at BlackRock; Rob Kauffman, a managing director at UBS; and Randal A. Nardone, also a managing director at UBS.[4] Fortress quickly expanded into hedge funds, real estate-related investments and debt securities, run by Michael Novogratz and Pete Briger, both former partners at Goldman Sachs.[8]

Fortress Investment Group's investments grew rapidly, with its private equity funds netting 39.7% between 1999 and 2006.[9] When Fortress launched on the NYSE on February 9, 2007 with Goldman Sachs and Lehman Brothers underwriting the IPO, it was the first large private equity firm in the United States to be traded publicly.[5][6] In the wake of the economic downturn of 2008, Forbes included Wesley Edens (and two other Fortress principals) among its "biggest billionaire losers of 2008", noting that Edens had "watched his fortune dwindle as investor redemption soared at the company's flagship fund".[10] Fortress and its principals were subsequently featured in an April 2009 Vanity Fair article on the adverse economic conditions facing hedge funds.[11]

2010–present

In 2014, Fortress Investment Group was named "Hedge Fund Manager of the Year" by Institutional Investor and "Management Firm of the Year" by HFMWeek. Fortress has previously been recognized by Institutional Investor as “Discretionary Macro-Focused Hedge Fund of the Year” for 2012, and “Credit-Focused Fund of the Year” for both 2011 and 2010.[12] In Autumn 2014, Fortress hired Jeff Feig, formerly the Global Head of Foreign Exchange at Citigroup to join Novogratz as co-CIO of the Fortress Macro Fund.[13] However, as of October 13, 2015, the company announced that the $2.3 billion Macro Fund was to close down and distribute its assets to investors. This development came after Feig stepped down as co-CIO of the fund in July 2015.[14] According to the firm, Novogratz, the remaining CIO, was expected to retire from the firm by the end of 2015.[15] As of June 30, 2016, Fortress Investment Group had four core businesses totaling approximately $70.2 billion of assets under management: private equity, credit, liquid markets[7] and traditional asset management (Logan Circle Partners was acquired in April 2010).

On February 14, 2017, SoftBank Group agreed that in the future it would buy Fortress Investment Group LLC for $3.3 billion.[16][17] The SoftBank acquisition was completed in the last week of December, for $3.3 billion to SoftBank Group Corp.[18]

In the wake of the Harvey Weinstein sexual assault scandal, in late October 2017, it was reported that Fortress Investment Group was in talks to provide a loan to Weinstein Co.[19] In December 2017, Fortress Investment Group loaned $100 million to the medical startup Theranos. Theranos had reportedly been on the verge of bankruptcy, with the loan to keep them solvent through 2018.[20][21][22] At the time, Fortress also had "underdog" bets in a private passenger rail line in Florida.[21] By January 3, 2018, however, the company had divested itself of Florida East Coast Railway and Logan Circle Partners.[21] It remained the parent company of the Brightline passenger rail in Florida, however, which is the only privately owned and operated passenger railroad in the United States.[23] Fortress Investment Group is also investing in the construction of Brightline West, a high speed rail route between Las Vegas and Southern California. The route is being advertised as “A Brightline Company.” On January 3, 2018, it was reported that Fortress was nearing a deal to sell its stake on OneMain to Apollo Global Management.[18] The agreement was announced on January 5, with Varde Partners also taking part in the purchase.[24]

In 2020, Fortress Investment increased its bid for Japanese company Unizo to roughly $1.6 billion.[25][26]

Portfolio companies

In 2006, Fortress-managed Funds acquired Canadian ski resort operator Intrawest, North America's largest ski resort operator that also operated luxury adventure travel brands such as Abercrombie & Kent, which was sold in August, 2016.[27]

On November 15, 2006, RailAmerica announced that a Fortress-managed fund would acquire the company, offering $16.35 per share (a 32% premium). The transaction was completed in February 2007. Fortress later sold RailAmerica via initial public offering in October 2009.

On May 8, 2007, Florida East Coast Industries (FECI), parent company of Florida East Coast Railway, announced that following a unanimous vote of the FECI Board of Directors, a Fortress-managed fund would acquire FECI in a transaction valued at $3.5 billion.[28][29] The Surface Transportation Board approved the transaction in September 2007. Although RailAmerica operated FEC for a time, the two were never merged, and after the RailAmerica IPO Fortress retained FEC (and still does).

On June 15, 2007, Fortress announced that it would partner with Centerbridge Partners to acquire Penn National Gaming, an operator of casinos and horse racing venues, for $6.1 billion. Penn National shareholders were to receive $67 cash for each share. On July 3, 2008, Fortress backed away from the agreement amidst the uncertain economic climate. Under the termination agreement, Penn National receives $1.475 billion, consisting of a breakup fee of $225 million and an interest-free $1.25 billion loan from Fortress, Centerbridge, Wachovia and Deutsche Bank. Fortress co-chairman Wesley Edens assumes a seat on the board of Penn National as part of the agreement.[30][31]

Fortress has taken several of its portfolio companies public, such as Aircastle Ltd., Brookdale Senior Living Inc., GAGFAH and RailAmerica, Inc.

Fortress has said it lost $125 million purchasing fraudulent promissory notes from Marc Dreier, who had been operating a Ponzi scheme. Fortress filed a lawsuit against the law firm Dechert in an attempt to recover the loss.[32] The lawsuit was filed in New York state court, alleging Dechert issued a "false" legal opinion letter that Dreier used to defraud Fortress.[33]

Fortress's private equity investment portfolio includes Aircastle Limited, Alea Group Holdings (Bermuda) Ltd., AMRESCO, Boxclever, Capstead Mortgage Corporation, CW Financial Services, Eurocastle Investment Limited, Flagler, Florida East Coast Railway, GAGFAH, GateHouse Media, Inc., Global Signal, Inc., Green Tree Servicing LLC, Holiday Retirement, Intrawest, Italfondiario, Kramer Junction, Mapeley Limited, MBS Holdings, MS Hub, Nationstar Mortgage LLC, Penn National Gaming, Inc., Prime Retail, RailAmerica, RESG, Seacastle Inc., Simon Storage, Springleaf Financial and Umami Burger.[34]

On January 21, 2014, Fortress Investment Group was the winning bidder for the assets of the Montreal, Maine and Atlantic Railway, a line bankrupted after the July 6, 2013 Lac-Mégantic derailment of a runaway train loaded with crude oil obliterated much of historic downtown Lac-Mégantic, Quebec, causing 47 fatalities.[35] In March 2014, John E. Giles of Great Lakes Partners estimated a $10–$20 million investment would be needed over three years to repair the line, which Fortress brands as the Central Maine and Quebec Railway, as it is in poor condition and currently not safe for the transport of oil or dangerous goods.[36] The sale was completed on 15 May 2014, for US$15.85 million.[37]

In October 2014, it was reported by the Birmingham Business Journal that Fortress Investment Group had purchased the Inverness Corners retail center.[38] Fortress Investment Group is also the parent company to Mystays hotels and resorts in Japan.[39]

Controversies

Intrawest late payment

In 2006, Fortress acquired Intrawest in a leveraged buyout. Three weeks before the opening of the 2010 Winter Olympics in Vancouver, Fortress failed to make payment on its loan used to buy out Intrawest. This caused its creditors to force Intrawest to divest itself of several of its resort holdings in 2009 and 2010, which includes Whistler Blackcomb, in order to reduce its debt load.[40]

IPCom

Fortress Investment Group backed a German patent troll, non-manufacturing entity IPCom GmbH & Co. KG, notorious for suing Nokia for patent infringement for $17.77 billion in 2008.[41] Many of IPCom's patents have been invalidated by the courts and millions of dollars have been incurred in legal costs.[42]

COVID-19 test kits

On March 9, 2020, Fortress Investment, through its non-operating subsidiary Labrador Diagnostics which was incorporated on March 6, 2020, used intellectual property patents acquired from the now defunct company Theranos to sue BioFire Diagnostics, a health startup owned by BioMérieux, in an attempt to extract money through patent trolling.[43] Labrador Diagnostics alleges that BioFire’s FilmArray technology which was first introduced to the market in the early 1990s and has since been developed into a variety of FilmArray technologies infringes on its patents for "systems and methods of sample processing and fluid control in a fluidic system" and "Point-of-Care Fluidic Systems and Uses Thereof" filed by Theranos in 2006. On March 3, 2020, six days before the lawsuit was filed, the Wall Street Journal published an article identifying BioFire and the fact it was working on two diagnostic tests for COVID-19, the discovery of this prompted media backlash against Fortress and SoftBank.[44] In response to the backlash, Fortress issued a statement claiming that when its subsidiary filed the lawsuit against BioFire it had no idea BioFire was developing COVID-19 testing kits.[45][46] Subsequently, Fortress offered to grant the defendants a royalty-free licence for its technology for use in COVID-19 tests, while still maintaining the lawsuit focusing on activities unrelated to COVID-19.[45]

Olympic village funds

Fortress Investment Group was the primary lender to Millennium Development Group for building the C$875 million athlete's village for the 2010 Winter Olympics in Southeast False Creek, Vancouver, British Columbia. Financial instability in September 2008 saw Fortress Investment Group reportedly at the brink of bankruptcy. Consequently, Fortress was unable to provide further financing to Millennium forcing the City of Vancouver to pay approximately $450 million (CAD) to complete the project in time for the Winter Olympic Games.[47] The City of Vancouver applied for and received legislative approval from the Province of BC to borrow as much money as required to enable the project to complete.[48] The village was completed in November 2009,[49] and Fortress Investment became the owner of the village after the 2010 Winter Olympics.[50]

Key people

Board of directors

See also

References
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    • Historical business data for Fortress Investment Group:
    • SEC filings
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