Thoughts On Fortress Investment Group’s IPO

By Yaser Anwar, CSC of Equity Investment Ideas

• With record M&A deals in 06, and Jan 07 already out-pacing Jan-Feb 06’s deals, it is clearly evident that investors expect the PE boom to continue.
• Goldman’s recent plans to raise $19 billion and MS’s 6 billion+, are like adding fuel to the fire. And with BoJ not expected to raise rates, the big boys can borrow more to finance their finances (though they won’t need to, given investor willingness to pour money in buyout funds).
• We can argue all day about FIG’s valuation being out of line, heck FMs will also put up a relative value trade shorting FIG/long GS. However, I don’t need to remind anybody on this blog that investors can remain irrational longer than either of us can stay solvent.
• Currently we’re in a PE/M&A boom trend, so the smart and dumb money will keep chasing returns in this sector. And execs at Citadel and FIG don’t mind raising $$$ from this cohort, ’cause it gives them an alternate medium to raise $$.
• As long as we keep seeing record M&A, LBOs & MBO deals, we’ll keep seeing FIG’s valuation reach astronomical levels.
• Also, a couple of friends have asked me, "What about HFs being all so secret, won’t the IPOs affect them?". Not really. Why? Look at the issuance of total voting power, its a dip in the ocean! FIG’s total float is worth about 7-8% of the whole company. The founders hold over 70% of the voting rights and with less than 10% of the ownership being public, they are under no pressure to disclose any strategies whatsoever.
• As a Trend Follower, I’d wait for a pull-back in FIG and take a position, albeit a small one, because having watched trends develop in the past, investors irrationality can push the stock into stratosphere (read: Tech Bubble, most recently in early 06, Ethanol stocks).
• Sure its safer in GS, I’d have most of my $$ in it, due to its undervaluation, but why not profit in the interim from irrationality that I expect will push FIG higher?

Also, I’d also like to announce Jonathan Knee (SMD of Evercore Partners and Author of The Accidental Banker) has agreed to be interviewed. I’ll be getting his thoughts on: HFs moving into PE (SAC, DE Shaw), PE boom and lots more.

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