Wesley Edens is the co-founder and co-chairman of Fortress Investment Group, a private-equity and hedge fund firm that took a shellacking during the financial crisis given its stakes in subprime originators.

That has all turned around in the last few years, however, as the investments Fortress made in the subprime sector both before and after the crisis, gradually recovered their value. In the process, Fortress has made billions.

Fortress Investment Wesley Edens
Wesley Edens

Edens, who is a well-known mountaineer and part owner of the NBA’s Milwaukee Bucks, has a personal net gain of close to $200 million given he is the largest individual investor in the Fortress PE funds with stakes in subprime lenders, according to sources who spoke to the star Wall Street Journal reporter, Greg Zuckerman.

The huge profits in subprime loans have helped Fortress offset recent losses in its “macro” hedge-fund business, and by some counts, have crowned Wesley Edens as the new subprime loan king.

“It’s not how I want my epitaph to read,” he says of the dubious title, “but it’s not a shameful thing helping people finance themselves. It’s not a bad thing.”

The coronation of Wesley Edens as new “subprime loan king”

Americans with poor credits need loans too, and the recent resurgence in this sector is providing Fortress with a giant windfall.

The firm’s majority stake in subprime lender Springleaf Holdings has skyrocketed in value to close to $3.5 billion, meaning a 2700% profit on Fortress’s original investment of $124 million five years ago. Of note, Edens was the one pushing the idea at the time.

Fortress also made a $1 billion investment in Nationstar Mortgage Holdings back 2006 that was practically worthless just two years later. Today, the stake is worth $1.35 billion. Nationstar collects payments on home loans, and close to one-fifth of its current loan portfolio is subprime.

Subprime loans booming today

Keep in mind that the current subprime-loan market is very different from just a few years ago. Today’s subprime boom is fueled largely by auto loans, credit cards and personal loans, not mortgages. However, there are both positives and negatives to that. There is usually less collateral on a student loan than a home mortgage attached to a property.

Banks and other lenders are moving into these subprime sectors mainly because borrowers had much lower delinquency rates on those loans than they did with mortgages in the aftermath of the financial crisis. Analysts point out that subprime-loan delinquencies are down a lot since 2009 and seem to have stabilized.

This trend led to one-third of all auto, credit-card and personal loans from the start of January to the end of April this year going to subprime borrowers, based on data from credit-reporting firm Equifax. That is the highest percentage of subprime consumer loans in the last eight years.

Also of note, lenders made 53.7 million auto, credit-card and personal loans in the first four months of 2015, an increase of 46% from from January to April of 2010.

We doubt this will end well, but that does not mean Fortress will not make some nice money until that time.