Fortress Investment Group, the firm backed by Abu Dhabi sovereign wealth fund Mubadala, said it expects to double assets under management to $100 billion as it pushes into private wealth and insurance.
"For us to compete with larger firms like Ares, Apollo and Sixth Street, we need to continue to grow assets, because if we don't then we'll be less relevant," said co-Chief Executive Officer Drew McKnight. Fortress aims to be among the first in line to help companies with their capital needs, he said, providing junior debt, preferred equity and structured equity, among other things.
"Increasingly we hear from limited partners that they want to have fewer relationships," McKnight said in an interview. "We feel like we're in a pretty good spot."
Buoyed by the allure of permanent capital, several alternative-asset managers, including Apollo Global Management Inc. and KKR & Co., have made a push to tap pools of insurance assets. Many have also built businesses to tap high-net-worth individuals who are increasingly interested in private markets.
McKnight was joined in the interview by co-CEO Joshua Pack, who said Fortress expects to reach the $100 billion threshold within five years — up from about $49 billion at the end of March — "based on conversations we're having with limited partners and the demand we've seen."
Fortress won't let fundraising distract from its mission to deliver superior returns for investors, McKnight said.
"There's a path where we can actually create a better product for our limited partners by having more access to capital and being more relevant," he said.
Pack, who joined the firm in 2002, and McKnight, who followed three years later, both witnessed the alternative-asset manager's transition from closely held firm, through its 2007 initial public offering, to its take-private a decade later by Masayoshi Son's SoftBank Group Corp.
Last month, Fortress management and Mubadala completed the acquisition of 90% of the equity of Fortress that had been held by SoftBank. The co-CEOs are calling the firm's latest incarnation "Fortress 4.0."
It's the first time that management has broadly owned a significant part of the firm, with more than 150 Fortress staffers holding a 32% stake. Co-Chairman Pete Briger and managing partners Pack, McKnight and Jack Neumark are the largest individual investors, and all wrote checks as part of the deal. Additional Fortress employees can become shareholders over time through an incentive program.
Unlike certain direct-lending rivals that have pursued bank partnerships to bolster origination pipelines, McKnight said the firm has ample flow.
While Mubadala is represented on Fortress's board by Hani Barhoush and Antoun Ghanem, McKnight stressed that the Abu Dhabi firm has no preferred economics.
"They're paying the same fees as everyone else when they invest in our funds," McKnight said. "We are eyes-wide-open that they are invested with virtually all of our competitors, but we also think if we're going to have capital partners, they're about as strategic as it can be."
Fortress, which counts North America, Western Europe, Japan and Australia as core geographies, plans to open an office in Abu Dhabi, Pack said. Investment professionals including intellectual-property head Eran Zur will spend time there, as will Harry Steel, a managing director within the firm's capital-formation group.
The firm's leaders haven't ruled out another IPO down the road.
"Anything's on the table," Pack said, "but it is one step at a time, and we are focused on everything we want to do in the near-term."
Senior hires
As Fortress aims to grow assets, it will target capital with varying durations and associated costs, Neumark said.
In 2022, the firm hired BlackRock Inc. alumnus Adam Bobker as co-head of its private wealth effort alongside Nils Wilson. Last year, the firm appointed Kenneth Pierce and Pradip Ghosh as co-heads of its insurance arm, asking them to partner with, and invest in, North American and European insurers. Before they joined, Fortress inked one such partnership with Nassau Financial Group.
"We want to be a solutions provider to the insurance market, whether it's through minority equity stakes or providing reinsurance capital," Neumark said. "We don't want to be viewed as a competitor to insurance companies. We don't have a vision today to be anything like a Global Atlantic or Athene," he said, referring to the insurance arms of rivals KKR and Apollo.
Last year, Bob Warden, the former global head of private equity at Cerberus Capital Management, joined Fortress with a mandate to help source, underwrite and manage deals.
"Our private equity investing has always had our own Fortress twist," Pack said. "We like either distress situations where we can get in control of a business, or we like potentially working with really good management teams that have some sort of vision and good skin in the game."
The firm favors asset-rich businesses, a definition that extends beyond real estate to intellectual property, litigation claims, licensing agreements and film rights, among others.
It's also regularly drawn to distressed or complex situations. Alamo Drafthouse is one example. In 2021, with the theater chain crushed by the pandemic, Fortress acquired discounted debt from banks, teamed up with another sponsor and management, put the company through bankruptcy administration and injected new capital, before selling it last month to Sony Pictures Entertainment. Fortress delivered a return of roughly 26% before fees on that bet, or more than doubled its invested capital, a person with knowledge of the matter said.
The firm has also identified opportunities to back beleaguered US regional banks. This month, Fortress was part of a group that invested in California-based lender First Foundation Inc. in a deal helmed by managing director Henchy Enden and former Wells Fargo & Co. CEO Tim Sloan, who's now vice chairman and head of commercial real estate debt at Fortress.
Separately, Balyasny Asset Management's former global head of equities, Jeff Runnfeldt, is joining the firm in October as chief investment officer of Fortress's multimanager hedge fund business, which is led by Todd Rapp.
In May, Michael Ronen, a former managing partner at the entity that oversaw SoftBank Vision Fund, joined as head of growth investing.
"If there's opportunities for us to play around in venture debt or some sort of structured trade," Pack said, "he's got the network to do that."
