Fortress Takes Off, Raising Possibility of More Hedge Fund IPOs

Fortress Investment Group , the first hedge fund to go public in the U.S., opened trading Friday morning at $35 after being priced at $18.50 a share, making a leap of 89%.

The stock changed hands for as high as $37 before giving back some of those gains.

The diversified fund, which raised $634 million through the offering of 34.3 million shares, was priced at the upper end of its forecast range of $16.50 to $18.50, an underwriter told Reuters.

The IPO opens the door for individual investors to gain access to hedge fund and private equity deals. If the company's deal does well, as many IPO analysts expect, it is almost certain to spark a flurry of similar offers.

The firm will list its shares on the New York Stock Exchange under the ticker "FIG."

The offering price gives the New York-based company an initial market capitalization of more than $7.4 billion.

On Thursday, a quartet of IPOs soared in U.S. market debuts, posting double-digit gains despite a slumping Dow and Nasdaq and snapping a slow market for new issues so far
this year.

The vast majority of Fortress shares were sold to institutional investors, leaving only a small percentage of shares for retail buyers to fight over Friday morning, Ben Holmes, publisher
of Morningnotes.com, an independent research firm told Reuters.

"Scrambling for Shares"

"People will be scrambling for shares," Holmes said. "It's obviously in big demand."
    
Retail buyers, who have limited access to hedge funds due to the large levels of investment required, might find Fortress shares particularly appealing, said Adam Sussman, senior
analyst at consultant Tabb Group.

But over the long term, the Fortress IPO could also make waves in the hedge fund community, Sussman said.

With hedge funds already listed in London, dramatic gains for Fortress shares on Friday could open the door for a number of similar firms to seek U.S. listings and, more importantly,
provide another stream of capital, Sussman said.

"I think this is the beginning of a trend," Sussman said. "If it goes well, I would expect some more premium names to go public. This is starting off with a well recognized name in the
group."

Fortress has ballooned from its inception in 1998, growing assets to $29.7 billion at the end of September 2006 from $1.2 billion at the end of 2001.

Due in large part to its financial performance, Fortress filled rooms for its road show presentations, which led to shares being "massively" oversubscribed, Scott Sweet, managing director for IPO research firm IPOboutique.com, told Reuters.

"Standing Room Only"

"Road shows were wall to wall and standing room only," said Sweet. "The underwriters certainly could have priced it higher with no problems."

The offering represents 8.5% of total shares in the company, but principals of the firm--Peter Briger, Wesley Edens, Robert Kauffman, Randal Nardone and Michael Novogratz--own 100% of the class B shares and about 78% of shareholder voting power, according to a filing with the U.S. Securities and Exchange Commission.

Prior to the IPO, Fortress sold about 55 million Class A shares, or a 15% stake, to Nomura Holdings, Japan's biggest investment bank, for about $888 million.

Fortress officials said the deal would help the firm expand into Asia.

The firm said it is going public to "maintain and expand our position" in the global investing arena, reward talented employees, give it acquisition currency and give it a sense of
"permanence" with investors.

The firm, which calls itself one of the largest "alternative" investment managers, plans to use net proceeds from the offering to repay debt and for general business purposes.

Led by Goldman Sachs, Banc of America Securities, Citigroup, Deutsche Bank Securities and Lehman Brothers, underwriters have the option to buy an additional 5.1 million Class A shares to cover overallotments.

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