RBC Capital Markets analyst Bulent Ozcan highlights Fortress Investment Group LLC (NYSE:FIG)’s announcement to repurchase 60.6 million of Class A shares at a 25% discount.
At $6 a share, this represents a discount of close to 25% based on Fortress Investment Group LLC (NYSE:FIG)’s share price as of close yesterday.
Nomura, a strategic shareholder, had bought 55 million shares for $888 million prior to Fortress Investment Group going public. In 2009, Nomura had increased its ownership buy buying an additional 5 million shares at an offering price of $5. We estimate Nomura’s weighted average cost basis to be around $15.
This transaction should remove one of the overhangs on the company’s shares. On a forward looking basis, this transaction could increase future distributions to shareholders while not impacting liquidity of Fortress Investment Group LLC (NYSE:FIG)’s shares as Nomura Holdings, Inc. (ADR) (NYSE:NMR)’s shares were not trading. The increase in future distributions would come from not having to pay dividends to Nomura and the need to hold less capital in anticipation of a buyout of a strategic shareholder.
According to the press release, Fortress will continue to work closely with Nomura, which has helped Fortress Investment Group’s expansion in Asia. We would expect close cooperation, as well, since Fortress has investment banking relationships with Nomura.
Overall, we view the repurchase a positive outcome for Fortress’s shareholders.
Fortress Investment Group’s hedge fund returns: Commentary from RBC
Fortress Investment Group LLC (NYSE:FIG) reported returns for its hedge funds this evening:
Credit Hedge Funds continued to post strong returns for the month of December finishing the year on a strong note; Fortress’s Liquid Hedge Funds had a challenging first month of 2014.
As for Credit Hedge Funds, Fortress Investment Group LLC (NYSE:FIG) disclosed that the Drawbridge Special Opportunities Fund generated returns of 1.43% in December ending the year up 18.4%. Likewise, the Drawbridge Special Opportunities Offshore Fund had positive returns of 0.62% in December, ending the year up 15.6%.
In Liquid Hedge Funds, Fortress Investment Group LLC (NYSE:FIG) began the year with a rocky start. The Macro Fund, Asia Macro Fund and the Fortress Partners Fund all posted negative returns in January:
The firm’s largest fund, the Macro Fund, reported a loss of 5.92% in January. As a comparison, the MSCI World Index was down 3.8% during this period while the MSCI Emerging Market Index was down 6.6%.
As for the Asia Macro Fund, the performance was slightly better. This fund reported negative performance of 3.12% The Convex Asia Fund, which is meant to deliver out-sized returns during periods of heightened capital market volatility and dislocation, lost 4 basis points in January.
Certainly, January has been a weak start for Fortress Investment Group LLC (NYSE:FIG)’ hedge funds. Nonetheless, with 11 months remaining in the year, we are optimistic that management can turn around performance.
However, we would expect the shares to come under pressure tomorrow morning when markets open.