Fortress' IPO

In a "must talk about case" for all of my classes, Fortress went public today.

Who is Fortress? From Marketwatch: "Fortress Investment Group -- not a hedge fund -- but a nine-year-old company that runs hedge funds."

First the facts:

From Business Week: Investors Storm Fortress IPO:

"In the most widely anticipated public offering of the young year, Fortress
Investment Group (FIG), the first U.S.-based hedge fund to go public, stormed
the ramparts. Shares in the alternative investment outfit were trading around
$32 in the early going Feb. 9 -- 73% above the offering price set the previous
day but down from the intra-day high of $37. The shares opened trading at $35."

The IPO:

From the NY Times:
"The first hedge fund and private equity company to go public in the United States will make its market debut today at $18.50 a share — at the high end of its expected price range."

and later:

"Fortress is trading some of that privacy and cachet for capital.
The company raised $634 million from the sale of 34.3 million shares yesterday.
Demand for the offering was strong, analysts said. People who attended a
presentation by Fortress on the offering on Wednesday said that it was standing
room only. Last week, Fortress said in a filing that it expected to sell the
shares in a range of $16.50 to $18.50 each."

Some interesting things to note:

• The VAST majority of the price appreciation went to the first buyers (IPO was at 18.50, first trade in secondary market was $35).
• Can a hedge fund company (most of whom love secrecy) maintain competitive advantages as a public firm? (In fact other hedge funds that have gone public have shied away from issuing in the US due to regulations that would lessen their secrecy.)
• Does the IPO signal the cooling of the hedge fund industry? (from MarketWatch:"Under pressure, managers like those at Fortress may be looking to a reliable source to keep the new money rolling in, said Roy Smith, a former partner at Goldman, now a finance professor at New York University. Hedge funds remain a fashionable place to be for small-time investors who recognize it as a symbol of sophistication...."When the smart money is pulling out," Smith said. "It's time to start selling to the dumb money." ")

Yep, we'll be talking about this one in class!