Fortress to sit on capital in ‘frothy’ credit market

Fortress’ co-chairman and head of credit, Pete Briger (pictured), said that reward in credit markets globally do not match the risk during the US-based firm’s first quarter earnings call last week. Fortress’ credit performance was muted in the quarter as realisations fell, he added. 

Fortress raised a significant amount of money in the first quarter of 2014, management said, totalling a record $5.4 billion across its alternative investment businesses including $4.7 billion for the Fortress Credit Opportunities (FCO) Fund IV. 

“I would say the easy money has certainly been made in credit and real estate on the credit side and the markets are really almost devoid of opportunity for new investments, so that dry powder will probably sit around for a while waiting for the environment to change,” said Briger. 

The firm reported assets under management at an all-time high of just under $70 billion. An additional $1.4 billion of capital was raised in April and the firm now sits on $10.7 billion of dry powder. 

Briger added that the frothy credit markets the firm sees now typically lead to high default rates over the following 12 to 24 months. But even though that high default environment should be positive for an opportunistic distressed strategy like Fortress Credit Opportunities Fund IV, Birger noted that the health of the banking sector means there could be a high default rate without a heightened risk perception so the opportunities may take longer to trickle through. “That being said, you have these events like what's going on in the energy sector where there maybe some stuff to pick through even though the environment for credit is frothy,” Birger continued. 

He was more positive on the real estate side noting that there are opportunities in the US and Japan and noted that Fortress has closed its Japanese real estate fund. 

Fortress also said that it had around $848 million in unrealised incentive fees but when questioned, chief executive Randy Nardone said that around $600 million of that total was in term-dated credit investments that cannot be realised. 

Annualised inception-to-date net IRRs on the firm’s flagship distressed credit funds FCO, FCO II and FCO III were 25.2 percent, 17.8 percent and 12.7 percent, respectively. 

Fortress announced a cash dividend of eight cents per share for the quarter ending 31 March 2015.