Fortress Confirms Novogratz-Led Macro Fund Closure After Bad Brazil, China Bets

Following last night's 'reports' that Fortress Investment Group will shutter its once colossal macro hedge fund (and Mike Novogratz will leave), FIG shares bounced back into the green after tumbling 10% overnight. However, FIG shares have just been halted, news pending...

We presume this is the "news" that confirms the reports...

 

Fortress Statement

Fortress Investment Group LLC today announced that it will close the Fortress Macro Funds and managed separate accounts (“FMF” or “the Funds”) and return all capital to investors by the end of the year. Fortress Principal Michael Novogratz, who founded the firm’s Liquid Markets business in 2002, is expected to retire from the firm and its Board of Directors at year end.

 

In conjunction with today’s announcement, Fortress will redeem all of Mr. Novogratz’ Fortress Operating Group Units, representing beneficial ownership of approximately 56.8 million class A or equivalent shares as of September 30, 2015. The company will repurchase Mr. Novogratz’ ownership interests at a price of $4.50, equivalent to a 17% discount to the closing price of Fortress Class A shares on October 12, 2015. As a result of this transaction, Fortress’s dividend-paying share count will be reduced by approximately 13%. Fortress will fund the transaction through a combination of available cash and a note issued to Mr. Novogratz. The transaction is subject to completion of definitive documentation and customary Board approvals.

 

“After careful consideration and analysis, we have decided to close the Fortress Macro Funds and return cash to our investors,” said Fortress Principal and Macro CIO Mike Novogratz. “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, made the following joint statement:

 

“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.”

 

“Looking ahead, all meaningful drivers of business and earnings growth remain in place, embedded value on our balance sheet and in our funds is enormous relative to our market cap, and approximately 90% of our alternative capital will now reside in long-term or unlimited duration structures. We have an exceptional group of businesses in place today, and we have tremendous confidence in the ability of our company to grow and create value in the years ahead.”

 

As of June 30, 2015, FMF assets under management (“AUM”) of approximately $2.3 billion represented approximately 3% of total Fortress AUM. FMF has been the core strategy in the firm’s Liquid Markets business, which accounted for approximately 2% of total Fortress pre-tax distributable earnings (“DE”) in the last 12 months through June 30, 2015. In aggregate, the firm’s Credit and Real Estate, Private Equity, Permanent Capital and traditional asset management businesses have delivered annualized growth in DE and AUM of 24% and 14%, respectively, over the past three years.

It appears big loising bets on Brazil and China were responsible:

From May:

  • *SALT: NOVOGRATZ THINKS BRAZIL WILL TRY TO KEEP CURRENCY WEAK

Michael Novogratz, principle at Fortress Investment Group, spotlighted Brazil as a good long bet Monday at the prominent Sohn Investment Conference, saying he believed its economy would rally if current president Dilma Rousseff loses her re-election bid this fall.

“A lot of the bad news is priced in, changes after the elections are not,” headlines one of the slides in his refreshingly pithy, 13-slide presentation.

“The bet is a really simple one,” Novogratz said Monday “The election dynamic is going to shift between now and the election, and the probability of [Ms. Rousseff] winning will go lower.”

  • *SALT: NOVOGRATZ SAYS MONSTER SHIFT OF CHINA CONSUMERS INTO MKT
Michael Novogratz, a principal at Fortress Investment Group LLC, said Chinese stock are entering what could be one of the greatest bull markets as consumers in the country are increasingly investing in the stock market.
 
“Chinese stocks had an unbelievable rally already and certainly will be volatile and have corrections, but I think it will enter one of the greatest bull markets we’ve seen,” Novogratz said Wednesday at the SkyBridge Alternatives Conference in Las Vegas.
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So why wouldn't you buy FIG with both hands and feet?