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Last December business executives from around the globe made their way to Manhattan’s Trump Tower to meet with president-­elect Donald Trump. But few made as big of a splash as Masayoshi Son, head of SoftBank Group Corp., who had Trump crowing on Twitter about the Japanese mogul’s pledge to invest $50 billion in the U.S. and create 50,000 American jobs.

“He’s one of the great men of industry, so I just want to thank you very much,” Trump said of Son, who took over as SoftBank’s CEO last year following poor performance by his predecessor. One might have predicted that Son’s first U.S. investments during the Trump era would be in the kinds of high-flying tech companies, like Alibaba Group Holding, that SoftBank has become famous for staking. Instead, on February 14, SoftBank agreed to pay $3.3 billion to buy Fortress Investment Group, the struggling alternative-­investment firm that went public to great fanfare ten years ago but whose shares have since lost 74 percent of their market value.

Despite the slide in the firm’s stock, Fortress’s principals have made out well, pulling billions out of the company — thanks in part to the latest deal with SoftBank.

“The founders got a big payday when they took it public, and now they’re getting a second good payday,” says Myron Kaplan, a founding partner of law firm Kleinberg, Kaplan, Wolff & Cohen, who counsels hedge fund firms like Elliott Management Corp. on organizational structure and succession planning. Kaplan says Fortress has been “terrible” for public investors.

Fortress was the first U.S. alternatives firm to go public, in 2007, starting a trend that burned red-hot, then quickly flamed out, proving over the past ten years that these deals have been a disaster for public shareholders, which include big mutual funds catering to both retail and institutional investors. Among Fortress’s shareholders: Allianz Asset Management, Fidelity Investments, Wellington Management Co., and even the State Teachers Retirement System of Ohio.

And there is another ominous takeaway. Unlike most of its hedge fund and private equity peers, Fortress makes its numbers public, and they shine a harsh light on the alternative-investment business over the past decade. Fortress’s assets have more than doubled since 2005, but the firm’s net income was lower in 2016 than it was in 2005.

“Fortress hasn’t performed great,” says Ann Dai, an analyst at Keefe, Bruyette & Woods who says the “complexity” of the firm’s business model also has made investors wary. Complicated tax issues, a plethora of esoteric investment strategies, and a dual share-class structure that gives the principals disproportionate voting power aren’t for the faint-hearted. Although almost half of its $69.6 billion in assets under management are in the staid, low-fee world of fixed income, Fortress’s private equity funds invest in senior-living centers and railroads, and its hedge funds buy distressed real estate credit. Meanwhile, its best-known macro hedge funds have flopped, its vaunted private equity funds haven’t surpassed their hurdle rates in years, and even its highly regarded credit funds seem to have hit a wall.

Fortress co-founder and co-­chairman Wes Edens may have inadvertently summed up his firm’s value last fall, on a third-quarter conference call, when he talked about the environment for Fortress’s private equity business: “I think it’s a time to be cautious. There are lots of things for sale, and there are few things that are really worth buying.”

That isn’t stopping SoftBank. Though primarily an Internet and telecommunications company, it recently said it planned to parlay its hefty cash hoard into a $100 billion investment fund. Fortress’s $3.3 billion deal with SoftBank was driven by Rajeev Misra, a former Deutsche Bank derivatives expert who is now in charge of investment strategy for the Japanese firm. A few years ago Misra worked briefly at Fortress, where he developed a relationship with Edens and Peter Briger Jr., who cochair the board of directors. (Briger also has ties to Japan, where he previously worked for Goldman Sachs Group.)

SoftBank’s purchase of Fortress may be part of a grand strategic vision that has yet to be articulated. But Fortress had long been looking to sell, analysts say. Indeed, just months after going public, the firm reportedly hoped to secure a tie-up with Bear Stearns Cos., before the latter imploded into the arms of JPMorgan Chase & Co. The sale to SoftBank wasn’t easy to pull off, either.

“The consummation of the deal was in serious doubt as late as February 12, 2017,” according to a complaint by the Securities and Exchange Commission regarding suspected insider trading in Fortress shares at two brokerages in Singapore and London (Maybank Kim Eng Securities and R.J. O’Brien) ahead of the announcement.

Both Fortress execs and Son are appropriately ecstatic about the deal. “SoftBank is an extraordinary company that has thrived under the visionary leadership of Masa­yoshi Son,” Briger and Edens said in a public statement. “We anticipate substantial benefits for our investors and business as a whole, and we have never been more optimistic about our prospects going forward.”

Son said in the same statement, “Fortress’s excellent track record speaks for itself, and we look forward to benefiting from its leadership, broad-based expertise and world-class investment platform.” Neither Fortress nor SoftBank responded to requests for comment beyond those public statements.

SoftBank is paying a huge premium for Fortress, having agreed on $8.08 per share when the stock was trading at $5.83, with a book value of $4 per share. That has led some analysts to applaud the deal. “Fortress wasn’t getting credit in the public markets,” says JMP Securities analyst Devin Ryan. “This transaction gives them a bigger partner to grow their business at a faster rate.”

A source close to Fortress says, “The sale seems to reflect the principals’ belief in the business model and investment platform, but probably a profound skepticism that an alternative manager will ever be ascribed a premium valuation in the public markets.”

It has left some hedge fund veterans scratching their heads. “Culturally, it is such a disconnect,” says Bruce Ruehl, a former executive at hedge fund consulting firm Aksia. Fortress has virtually no footprint in the high-tech world, and the Japanese record in asset management isn’t strong. Yet the pressure on alternative-­investment firms to sell will continue, Ruehl reckons, given that they are under siege. “There’s tons of fee pressure on any products sold into the institutional space,” he explains. “I’ve seen a lot of cycles, but this one is different. You better be doing it well and have some kind of hook that really differentiates you.”

Fortress is arguably not in the top tier of alternative-­investment firms, but even the star managers have hit hard times. Last year investors yanked more than $70 billion from hedge funds, according to Hedge Fund Research, as the industry underperformed the broader markets for the seventh year running. A few big names, like Perry Capital, shut their doors, and regulatory woes hit firms as diverse as Omega Advisors, which faces insider trading charges, and Och-Ziff Capital Management Group, whose African subsidiary pleaded guilty to bribing foreign government officials. Even industry legends like Paul Tudor Jones are slicing their firms’ fees, and the pressure shows no signs of abating.

More firms will shrink, disappear, or — if they’re lucky, like Fortress — be gobbled up. The Japanese aren’t the only foreigners who are circling. A subsidiary of China’s HNA Capital, an aviation and shipping conglomerate, was part of a consortium that agreed to buy out Anthony Scaramucci’s stake in $12 billion fund of funds SkyBridge Capital so he could work for the White House. It was an opportune time for Scaramucci to sell, as SkyBridge had lost money for the past two years.

Fortress’s woes exploded into public view in 2015, when Michael Novogratz, one of the firm’s principals and an industry luminary who had joined from Goldman Sachs, retired after shutting down his Drawbridge Macro fund following wrongheaded bets on everything from Brazil to China. The Novogratz departure made headlines, but in fact the problems at Fortress had been brewing almost from the time it went public.

The year Fortress tapped the public markets, 2007, was an auspicious time for hedge funds, which had just burst into the public consciousness: Institutional investors like pension funds had started piling into them after losing money in the stock market crash earlier in the decade. Multibillion-dollar fund launches were not uncommon, banks were trying to gain a toehold by taking stakes in top funds, and a mystique of riches surrounded the highfliers. Although the Fortress IPO was priced at $18.50, it was oversubscribed, leading to a market debut at $35 per share. Both Blackstone Group and Och-Ziff Capital followed suit, debuting later that year at $31 and $32 per share, respectively.

Fortress had quickly grown assets during the hedge fund heyday, amassing $29.7 billion by the time of its IPO. The firm’s initial valuation of $7.5 billion was 37 times its 2005 pretax income, an indication that investors thought they’d found the next great growth stock. Instead, it was a market top indicator. Fortress principals Edens, Robert Kauffman, and Randal Nardone (all from UBS), and ex-Goldman stars Briger and Novogratz became billionaires on paper, owning more than 77 percent of the stock.

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