Fortress Halts Drawbridge Global Fund Withdrawals

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Dec. 3 (Bloomberg) — Fortress Investment Group LLC fell 25 percent to a record low after the private-equity and hedge-fund manager halted redemptions from its Drawbridge Global Macro fund, which had lost value this year.

Investors asked to withdraw $3.51 billion by year-end, including the $1.5 billion in redemption notices disclosed last month, the New York-based company said today in a filing with the U.S. Securities and Exchange Commission. Fortress spokeswoman Lilly Donohue declined to comment.

“The market essentially lost faith in Fortress as a franchise so that anything Fortress does is tainted by problems that it had in its private-equity portfolio,” said Jackson Turner, an analyst with Argus Research Co. in New York, who has a “sell” rating on the company.

More than 80 firms have liquidated funds, restricted redemptions or segregated assets following a stock-market decline and a credit freeze that started with a housing slump and rising defaults on U.S. subprime mortgages. Hedge funds have posted losses averaging 23 percent this year through Dec. 1, according to Chicago-based Hedge Fund Research Inc.’s HFRX Global Hedge Fund Index.

Fortress said in November its hedge-fund clients asked to pull more than $4.5 billion, or 25 percent of their money, as the company reported its first quarterly loss since going public. The Drawbridge fund had $8 billion as of Sept. 30, and the requested withdrawals amount to about 44 percent of the money pool, said Roger Smith, an analyst with Fox-Pitt Kelton Cochran Caronia Waller USA LLC in New York. Drawbridge lost 12 percent this year, he said.

Shares Fall

“The fund doesn’t look to be a terrible performer relative to the industry,” said Smith, who has an “in line” or neutral rating on Fortress. “I’m not sure if this was based on performance alone. It’s more symptomatic of what you’re seeing in hedge funds across the board.”

Shares fell 63 cents, or 25 percent, to $1.87 at 4:07 p.m. in New York Stock Exchange composite trading. They have fallen 88 percent since the initial public offering in February 2007.

The hedge-fund industry may shrink as much as 45 percent by the end of this month to $1.1 trillion from its peak of $1.9 trillion in June because of investor redemptions and market losses, Morgan Stanley analyst Huw van Steenis said in a Nov. 24 report.

Hedge funds are private, largely unregulated pools of money whose managers can buy or sell any assets and participate substantially in profits from investments.

To contact the reporter responsible for this story: Bob Ivry at bivry@bloomberg.net.

Last Updated: December 3, 2008 16:57 EST
By Bob Ivry and Gillian Wee

Source: Bloomberg

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