It turns out the rumors that began circulating over the weekend were true. Following a brief halt in trading Tuesday, Fortress Investment Group released a statement noting the closure of the Fortress Macro Funds and that it plans to return all capital to investors by the end of the year.
Of note, Michael Novogratz, who founded Fortress’s Liquid Markets business more than a decade ago, will also retire from the firm and its Board of Directors on December 31st. However, don’t dry for Novogratz.
Shares of hedge fund and private equity group Fortress are up by 5% in Tuesday trading, and the stock is down by close to 30% over the last year.
More on Fortress Macro Funds closing
Fortress also announced that the firm will redeem all of Novogratz’ Fortress Operating Group Units (around 56.8 million class A or equivalent shares as of September 30, 2015). The firm has negotiated a repurchase of Novogratz’ ownership interests at a price of $4.50, a 17% discount to the closing price of Fortress Class A shares on October 12, 2015. This means Fortress’s dividend-paying share count will shrink by nearly 13%. The transaction will be funded by available cash and a note payable to Novogratz.
The Fortress macro fund was founded in 2002 to invest based on global macroeconomic shifts by trading stocks, debt, commodity and currency markets, is off more than 17% so far this year through September, based on a recent regulatory filing. Losses stemming from investments in Brazil, and currency trades, among other areas, are apparently the straws that broke the camel’s back, according to a Fortress investor.
Analysts point out that macro funds have lost 0.6% this year through September on average, according to research firm HFR.
The Fortress fund has an AUM of nearly $1.6 billion today, a huge decline from more than $8 billion in its heyday in 2007.
The closing of the Fortress Macro Fund brings a focus on the current problems in the hedge-fund industry. Hedge funds are averaging losses of greater than 3.8% so far this year through September. While that is better than the 6.4% total loss by the S&P 500 over the nine months, it is notably worse than the 1.1% total return of the Barclays U.S. Aggregate Bond Index to date in 2015. Given that hedge funds market their ability to produce steady returns in any environment, and the fact they have lagged the big stock market over the last few years has led some clients to reassess their investments.
Statement from Fortress principals
“After careful consideration and analysis, we have decided to close the Fortress Macro Funds and return cash to our investors,” noted Fortress Principal and Macro CIO Mike Novogratz in a statement on Tuesday. “This was a difficult decision given my confidence in both the research positions we hold and the talent of our team. But we have had an extremely challenging two years, and I do not believe the current environment is conducive to achieving our best results. The recent past does not negate years of hard work and achievement. It has been a rare privilege to lead the Macro team and to serve as a Principal at Fortress.”
Fortress co-Chairmen Peter Briger and Wesley Edens, and CEO Randal Nardone, noted:
“We are obviously disappointed in this outcome, and we are grateful for Mike’s many contributions to Fortress over the years. While we regret closing a fund that has been productive in the past, we also recognize the market’s reluctance to ascribe value to this strategy even in its best years.”