Fortress Investment Group may take “two or three” of its companies public in the next year, including its mortgage-servicer Nationstar, according to Wesley Edens, a principal and co-chairman of the firm.
Edens spoke before the Oregon Investment Council earlier this month, reviewing Fortress’ funds and plans for the future. In addition to discussion potential IPOs, he also addressed performance issues within Fortress funds.
“We took one company public this fall, RailAmerica, and we’ve probably got two or three other companies that we’ll capitalise publicly, that would be my guess if I’m sitting here this time next year, all things being equal,” Edens told the OIC, according to a record of the meeting.
“We have a big financial services firm, Nationstar, one of the largest servicers of loans in the country, and that has been a tremendously successful business for us that I think you’ll see end up as a public company here in the coming days,” he said. Edens didn't name other candidates for public offerings.
Fortress has no immediate plans to file an initial public offering, according to a source with knowledge of the situation.
Fortress acquired Nationstar from home-builder Centrex in 2006 for $554 million in cash. The firm shuttered the company’s loan origination business in 2007, turning it solely into a loan servicer.
The investment in Nationstar is held in Funds III and IV, Edens said. “The biggest investment … in terms of upside in Funds III and IV is this investment in the servicing company, this company called Nationstar.”
Nationstar had a run-rate EBITDA of about $30 million at the beginning of 2008, Edens said. That has grown to a run-rate EBITDA of about $120 million.
“I think it has a very good chance at this time next year of being $250 million in run-rate EBITDA,” Edens said.
Oregon had requested Fortress speak before the council on the performance of its funds, which have been down in the financial meltdown. At the market’s bottom earlier this year, Fortress’ Fund V had a -77 percent internal rate of return, according to OIC documents. The fund is up 57 percent from the first quarter, Edens said.
One council member asked why Fortress’ funds were down more than other funds in Oregon’s portfolio. “Why do you think your portfolio has been hit harder than other real estate portfolios?” the council member asked. “On average our portfolio is down 25 to 30 percent. The numbers we have, your returns are down more than that, significantly more than that.”
“I don’t have a great answer,” Edens answered. “At the end of the day the numbers will be what the investments are liquidated for, and I feel very comfortable when all is said and done on these investments we’ll stack up very well versus other folks.”
Edens attributed some of the losses to heavy investments in the public markets, which were “decimated” in the downturn, he said.
“Because we’ve got more exposure in the capital markets, we’ve had more volatility,” he said. “That was certainly the case on the way down, I think it will be the case on the way up.”