In May, I published a series on alternative asset managers, which culminated in a write-up of my latest purchase (at the time), Fortress Investment Group (FIG:US). Based on its net cash/investments per share, plus a fund management valuation of 6.3% * $46.4 bio of Assets under Management (AUM), I pegged FIG at a Fair Value of $7.80 per share.

Based on FIG’s $3.11 share price at that point, this offered substantial Upside Potential of 151%. This turned out to be v fortunate timing, as I caught the 2012 bottom (in fact, pretty much the 3 yr low) for FIG:

On Thursday, the share price again traded down to & held the key $4.08-19 support zone (for the past 5 mths), and then rallied strongly to close at $4.38. That’s a 41% gain vs. my write-up price 7 mths ago. And a 53% gain vs. my own net entry price (inc. dividends). I’m sure many readers (new or old) who were interested, but perhaps missed the boat on buying FIG, are now ready to give up & move on to the next idea..! But why? First, my $7.80 Fair Value still offers a 78% Upside Potential – pretty damn excellent for a US mid/large cap stock with zero debt! Second, fair value’s a moving target…we need to take a closer look at what’s been happening with Fortress since.

As with all asset managers, we first look at AUM:  Fortress is definitely firing on all cylinders here! End-September AUM stood at $51.5 bio, which compares to $43.7 bio at the beginning of the year, and is up +18% yoy. And this actually downplays their actual fund-raising success in the past year! Unlike some of its peers (bear in mind if you’re doing any comparative analysis), Fortress doesn’t include uncalled/non-fee earning commitments (‘dry powder‘) in total AUM. This dry powder was $3.2 bio last year, but has since more than doubled to $7.2 bio. I don’t include this dry powder figure in my valuation, but obviously it’s a significant & reassuring source of new AUM to come.

Next comes Performance:  Considering the average hedge fund’s up just +3% YTD 2012, Fortress has blown the lights out! Virtually all their hedge/credit funds are, by comparison, reporting double digit returns this year (with some PE funds earning 20%+). Logan…

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