Thank You, Credit Suisse.
That is what stockholders of Fortress Investment Group are no doubt saying today after shares of the alternative investments firm closed up 2.4 percent on Wednesday on a day when most market indices fell between 1.5 percent and 2 percent and financials in general crumbled by more than 2 percent.
What happened? It seems before the markets opened Wednesday morning, Credit Suisse analyst Craig Siegenthaler upgraded shares of Fortress to Outperform from Neutral, asserting that clarity on principal Compensation and a dividend increase would drive the upside. It also raised its earnings estimate for both 2012 and 2013.
Fortress is an investment management firm heavily involved in both the hedge fund and private equity businesses. At the end of the first quarter, it had $43.1 billion in assets under management. This included $13.2 billion in private equity, $12.6 billion in credit hedge funds such as the Drawbridge Special Opportunities Fund, and $4.4 billion in what it calls its Liquid Markets hedge fund business. The Liquid Markets hedge fund business primarily consists of the Fortress Macro Funds, the Fortress Asia Macro Funds and the Fortress Commodities Fund.
In its report, Credit Suisse points out that 80 percent of the firm’s assets under management is in long-term lock-ups, Fortress is raising capital in every strategy for the first time since 2008, 65 percent of the AUM is within 5 percent of the high water markets and its dividend could return as early as the second half of this year and by 2012 the yield could be more than 10 percent.
The investment bank also wrote in the report that it believes Fortress is well-positioned for long-term relative fund performance. It noted that a near-term correction in the structured markets is providing better opportunities for the firm’s funds to invest given it has $3.6 billion in credit PE dry powder.
In addition, higher regulation such as Dodd-Frank and a refinancing wave involving debt from deals done from 2005 to 2007 will provide the firm with investment opportunities. “FIG is one of the few financial stocks to benefit,” Credit Suisse asserted in its report.
Credit Suisse also is excited that new principal comp agreement extensions will most likely be announced in August, stressing it does not expect any departures of key principals Wes Edens, Peter Brigger and Mike Novagratz. It also is not worried about a spike in compensation. “This was the key driver of recent underperformance” in the stock, the bank noted, pointing to uncertainty around departures of key principals and the risk that expense levels would increase in 2012.
Did Credit Suisse’s upgrade of Fortress spill over to the other public-traded Alternative investment firms? Nah. Shares of Och-Ziff Capital Management fell 2.45 percent, KKR fell 2.59 percent, BlackRock 3.24 percent and Blackstone Group 2.53 percent.
