Dismantling a fortress, as shareholders find themselves buried under rubble…
Fortress Blocks Redemptions as Shareholders Lose 96% Since IPO 
By Anthony Effinger, in Bloomberg
One of the things Wesley Edens did soon after his company bought Canadian ski-resort conglomerate Intrawest Corp. in October 2006 was to finance construction of a $43 million gondola at Whistler, British Columbia.
The new lift, completed in December 2008, is the longest unsupported span for any gondola, stretching 2.73 miles (4.4 kilometers). It’s also the highest, dangling 1,427 feet (435 meters) over Fitzsimmons Creek between Whistler mountain and its sister peak, Blackcomb. Visitors to the 2010 Winter Olympics, for which Intrawest’s Whistler Blackcomb resort is a venue, are likely to ride it just for thrills: Two of the 28 cars have glass bottoms.
Two years after commissioning the ski lift, Edens, 47, finds himself staring into an abyss of a different sort. He’s the chief executive officer of money manager Fortress Investment Group LLC. Edens and his partners became instant billionaires when the company, which manages $34.3 billion in private equity and hedge fund holdings, went public in 2007. The Montana-born Edens, who ski-raced in high school, could have paid for the gondola himself.
In the past four months the shares of Fortress have lost most of their value, falling 96 percent to $1.34 from $31 on Feb. 9, 2007, their first trading day. “There’s been a lot of hardship in the world since then,” says Edens in a rare interview…
Drips of Bad News
“The more I’ve learned about Fortress, the less comfortable I’ve become,” says Jackson Turner, who follows the company at New York-based Argus Research Co. “There’s just this drip, drip, drip of bad news.” He recommends selling the shares. Only one of nine Fortress analysts tracked by Bloomberg rates them a buy.
Fortress is a prime example of what happens when the secretive world of hedge funds collides with the public disclosure required of listed companies. Two years after its initial public offering, Fortress remains a tangled web of subsidiaries and partnerships that analyst Turner says is anything but transparent…
The credit crunch has forced Fortress into the unwanted glare of publicity. Fortress bought its trove of assets with money from wealthy individuals, endowments and pension funds, augmented with debt. Now, investors are asking for their money back and banks aren’t making the loans that financial wizards like Edens used for a decade to double and triple returns on investors’ cash…
In December, Edens cut off disbursements from the company’s $8 billion flagship Drawbridge Global Macro hedge funds after investors asked for $3.5 billion back, Fortress said in a December regulatory filing. Earlier this month, Fortress told Drawbridge investors they could have about 70 percent of the money they requested, according to a person familiar with the plan. Investors will get the rest during the next 18 months, the person said.
Since the financial system went haywire in September, other hedge funds, including Chicago-based Citadel Investment Group LLC, run by Kenneth Griffin, and D.E. Shaw & Co., based in New York, also have told investors to wait…
Edens, who cut his financial teeth buying bad debt during the savings and loan crisis of the 1980s, says he’s optimistic his company will make it through the crisis. Bad times are good for his style of investing, he says…
Edens says Fortress will survive because it doesn’t have to give panicked investors their money back immediately. About 73 percent of the $34.3 billion that Fortress managed in September was locked up for at least 2.6 years, according to a table Fortress distributed to analysts in November. And even if returns are zero, the company makes $500 million annually from its management fees, it says.
…“They fancy themselves the other Goldman,” says a person who’s dealt with Fortress and declined to be named. “And they are at least as sharp.”
Full article here.
