Fortress credit strategy on the defensive

The firm has been able to tap into opportunities post-Brexit, but executives on the Q3 earnings call said it’s time to be defensive and avoid mediocre investments.

Optimism regarding opportunistic credit strategies available in the market is low, Fortress executives said on the firm’s recent earnings call, prompting the firm to outline a more defensive strategy in the near term.

Overall, the firm described a positive quarter for its credit investments with pre-tax distributable earnings amounting to $90 million, up from $69 million in the same period last year driven by a strong performance in the credit and private equity funds, the firm said. The credit business collected $68 million in pre-tax profits, a rise from $51 million.

But the firm’s credit focus has switched to a defensive one. “We are in a period of time where the opportunity set is low and the debt financing markets are as open as they’ve ever been. The best that can be said is that the seeds of the next great opportunity are being planted now, but our business is really one of defence and we’re really trying not to make marginal mediocre investments that we’ll have to work out if the environment changes,” said Peter Briger, principal and co-chairman of the board of directors with responsibility for the firm’s real estate and credit strategies.

Despite this, the firm was able to make some opportunistic plays in Europe following the UK’s vote to leave the European Union. But overall, the firm believes Europe does not present too many opportunities where the upside is greater than the risk.

Asked on the call if the firm would consider expanding its strategies beyond opportunistic strategies, Briger said it had been a consideration in the past, but the firm was sticking with what it knows. “We earn a tremendous amount more in the opportunistic business than we do in, for a lack of a better word, the banking business, and our plan is to make sure that when the cycle changes and the environment changes that we don’t have a lot of legacy problems that we’re dealing with,” said Briger.

Assets under management dipped slightly to $70.1 billion and dry powder hovers around the $7 billion mark, the firm reported.