February 12, 2007
Fortress Investment Group IPO
The Fortress Investment Group IPO was a hot issue. Investors drove up prices 68 percent on the first day of trading. The offering is unique because it is the first in American markets of a hedge fund manager. It reminds me of the Google offering in that only a small fraction of the equity is being sold in the IPO (less than nine percent) and the voting stock (Class B shares) is not being sold at all. Only Class A shares have been sold in the IPO. The five principals of the firm will own 78 percent of the total common (Class A and Class B) and 100 percent of the voting common (Class B stock) after the offering. There is no takeover premium in the stock sold. Investors seems quite content to make permanent bets on existing management. If managers leave voluntarily they sacrifice Class B shares, forcing them to exercise their right to convert to Class A. Twenty or thirty years out, an eternity for the markets, the firm will be faced with a need to change management and no easy way to do it. Look at the New York Times.
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