Q: What does management ownership and a long-term partnership with Mubadala mean for Fortress and its investors?
Josh:
It’s a landmark event for Fortress. I was a day one employee of our Credit business in 2002, and I have never been more excited or optimistic about the prospects I see ahead for our company, our people and our investors.
When you look at the evolution of Fortress, we’ve conducted our business as a closely held private partnership, as a public company, then as an independent business within a large global corporation. Each of those approaches came with some benefits, but we believe what we’ve put in place today checks all the boxes.
We create broad management ownership of our company, with all the positives that come with that. We deepen alignments with our clients in a very straightforward and powerful way. And we expand our partnership with Mubadala, a great global investor, where we see many opportunities to leverage our shared networks and experience. From every perspective, we could not be more pleased with the completion of the deal and the beginning of an exciting new phase for our company.
Drew:
We all take great pride in what Fortress has created since our founding, but at the same time, we are committed to building on that platform and creating something even greater in the years ahead. This structure puts us in a terrific position to achieve that, and we are all very energized by our prospects.
In many ways, this is more about preserving, not changing, anything about Fortress, while also ensuring that the firm is positioned to continue to be at the leading edge of alternative investing for the next 20 years.
Creating broad management ownership across our company was central to what we wanted to achieve. Today, each of us and approximately 150 of our eligible colleagues became equity owners in a company many of us have been a part of for 20 years or longer. These are not equity awards – a major portion of our team cut checks and put substantial skin in the game. We’ve invested in ourselves, in each other, and in our collective success. We think that puts a powerful new dynamic in play.
At the same time, we deepen a long-term partnership with Mubadala, one of the world’s great investors. We’ve had a terrific partnership since 2019, and we expect to see plenty of opportunity to leverage the power of our two platforms. It’s a partnership that we know will benefit our investors over the long term.
Jack:
We wanted to create a real culture of ownership that encourages a long-term view of success and an entrepreneurial mindset. We have that today.
For each of the three of us, this is our largest ever personal investment. We were thrilled to put our skin in the game. And we had incredible demand from eligible employees – far more than we could accommodate on day one. We think that’s a tremendous vote of confidence in the team. And our team only succeeds if we deliver for our clients, consistently and over the long term. That straightforward alignment was really a fundamental part of what we wanted to achieve.
We’re also removing uncertainties in a market where we expect to see a continuing trend of consolidation and ownership changes. That’s important not just for our limited partners, who are being asked to commit capital to long-term investment vehicles, but for our employees, who are also thinking long term. Their desire to build their careers at Fortress has given us a terrific record of retaining talent and growing our leadership from within. We think that advantage is only strengthened with this deal.
Q: What stays the same at Fortress? What are the defining characteristics of the company and the team?
Drew:
Our investment style and approach, our people, our focus on maintaining industry-leading infrastructure and resources, our brand and culture…all these fundamental aspects of what makes Fortress “Fortress” stay the same. The style and practices that have produced our track record are unchanged. With this ownership structure, we ensure that our style and approach are preserved and can be extended to new products and businesses that we may add over time.
The fact is that what Fortress is today reflects almost exactly what the Credit and Real Estate team set out to create in 2002, when Pete founded those businesses at Fortress. Pete, Dean and Marc envisioned a truly differentiated business that can do things and go places that other investors can’t, with the kind of nimbleness and flexibility that the best special situations platforms might have, but built on a real “credit culture,” with all the rigor and risk focus that that implies.
Josh:
I couldn’t agree more. We started the business with ambitious objectives. We knew we wanted to be able to cast a wide net sourcing investments. We knew that we wanted to cover the full credit spectrum. We wanted to have the resources needed to embrace complexity and to move quickly. So, we knew the business we wanted to build would need a different toolkit.
That meant making very substantial investments – to create a proprietary sourcing network that could cast that wide net and to build an internal asset management function that we knew would give us a real competitive edge. Those are investments we’re very happy to continue making today, because we’re confident they’ve contributed meaningfully to the performance we’ve delivered for investors.
Jack:
It’s difficult to overstate the importance of our asset management capabilities to our process and to our outcomes. In credit, you simply can’t count on the best investments in your portfolio making up for the underperformers.
Today, we have more than 200 professionals devoted exclusively to sourcing new potential investments around the world. That allows us to see the idiosyncratic, one-off opportunities that other market participants might not, which can be a huge advantage in periods when the credit markets might be generally benign and uninteresting. Once investments are made, we have a team of more than 160 professionals to monitor performance, flag emerging issues, and take action.
In addition to these internal resources, we’ve invested in servicing platforms that encompass more than $170 billion of loans. These platforms have more than 10,000 employees in more than 10 countries. That gives us the ability to identify the very first cracks or indications of weakness – in specific geographies, asset classes, industries or sectors. We can act with conviction to deal with stresses that we see taking shape early on.
Q: What other specific advantages does Fortress’ platform provide?
Josh:
Today, we can embrace complexity of all types. We can move up and down the credit spectrum and pivot between public and private markets. We have flexible, long-term capital in a wide range of strategies covering the risk-reward spectrum. So, we can do our diligence, structure the best capital solution for a company or counterparty, and then identify the most suitable fund structure for the transaction based on risk return characteristics. We have the flexibility and resources to move quickly and provide certainty of closing, even in the most urgent situations.
We listen to the market, and we can quickly pivot or refocus our resources based on what the market is telling us. A great example of that was the Spring of 2020, at the onset of COVID. We saw a tremendous disconnect in the public markets, where we concluded perceived risk far exceeded actual risk, even making dire assumptions in our models. We were able to pivot, refocus our resources and go from 0 to 60 very quickly to take advantage of the opportunity before it passed.
Q: Will the new ownership structure change how you think about building the business and adding new strategies?
Drew:
We’ve always taken a very deliberate and patient approach to expanding our platform and adding strategies. The focused strategies that we have in place today – like Intellectual Property, Legal Assets, Net Lease – were all incubated as allocations in our flagship funds. Those allocations might grow over time, as the strategy is refined, as a team and resources become more robust – and as the strategy performs. And in very select cases, if our limited partners express interest in focused exposure, we consider a stand-alone, focused strategy.
In each of these cases of building on and expanding strategies, we believe the incremental offerings have helped make our core credit business better. Both our Lending and Net Lease strategies were incubated and developed in our main hybrid fund. In every case, our new strategies improved our core credit business as they expanded our capabilities and helped diversify the portfolio. As we think about growth going forward, we will always focus on one central question – “Does it improve our existing funds and benefit our LPs?”
Josh:
Today, we really don’t see any missing pieces. What we are most focused on are highly selective additions to the platform that add expertise or capabilities that can make us better investors. And we are always interested in increasing the breadth of capital solutions that we can provide for our clients.
The creation of the Fortress Multi-Manager Group is a great example. The business was not a clear-cut strategic need, it was not an intuitive add. But as we came to know Jeff Runnfeldt, who will join as CIO, and Todd Rapp, who leads the business, we became very confident that the addition would not only benefit investors as a new investment option, but it would add an important new skill set and wealth of experience.
I think what’s unique about our position today, we now have the right ownership structure and the right partnership in place to explore and pursue new opportunities and to very selectively expand into new areas. We’re in a terrific place to build on what we’ve created since our founding, and to broaden over time the suite of solutions we provide to our clients.
