Investing 13 Jan 2007 08:08 pm

Hedge Funds Going Public

by Sean Hackbarth

Fortress logo

Fortress Investment Group plans to become the first publicly traded hedge fund on an America stock exchange. Will investors buy into the dark, secret world of hedge funds? Judging by the publicly traded funds in the U.K. they’ll bite:

But as public companies, will these businesses generate attractive returns for stock market investors?
One way to measure the industry’s performance is by looking to London and elsewhere in Europe. So far, investors there have been richly rewarded for backing most of these companies.

Shares of Britain’s Man Group, the largest publicly traded hedge fund firm in the world, traded below 30 pence during the mid 1990’s. They now change hands for more than 500 pence.

RAB Capital shares have almost quadrupled since the London-based hedge-fund manager went public in early 2004.
Shares of Partners Group (CH:002460882: news, chart, profile) , a Swiss private-equity and hedge fund firm, are up 78% since they began trading on Switzerland’s stock exchange in March 2006.

BlueBay Asset Management, which has almost $3 billion in fixed-income hedge fund assets, is up more than 15% since its London IPO in November.

Absolute Capital Management and Ashmore Group, two other London-listed hedge fund business, are up roughly 65% and 30% respectively since their debuts in 2006.

Fortress isn’t a pure hedge fund play. Their website lists their work in private equity funds and “Publicly Traded Alternative Investment Vehicles” along with their hedge funds.

Publicly traded stock is a currency to tempt current and future employees. Going public also is a way for the founders to cash out of their enterprise without having to shut down. These masters of the universe with their strong egos would love to see their companies outlast them showing future investors how smart they really were. But to really last they need a business plan that is more durable than the trading talent of a few. Secrets eventually come out, and the market learns about new ways of making money which pushes down exorbitant returns. Fortress having other avenues of making money might understand this.

[As a sidenote, Democratic Presidential candidate John Edwards recently resigned from Fortress. He told CNBC (watch the video) that he didn't expect to make any money from a Fortress IPO.]

For those who lust at hedge fund’s big returns but don’t have the wealth to join the club, shy at the high fees they charge and their lack of liquidity buying their stock just might solve their problem.

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