People often face dilemma with regard to investments in hedge funds. However, Fortress IPO (initial public offering) has managed to give good returns in the last couple of years. The article below states the various maladies existing in the hedge funds and the possible reasons of their closure. Information pertaining to Fortress IPO has also been provided.
For the first time, a company dealing with alternative asset management traded publicly on the New York stock Exchange (NYSE) in February, 2007. The IPO (initial public offering) launched by Fortress exemplifies the same. Hedge funds are slowly gaining ground along with private equity funds but these investment vehicles are likely to reign the market only if the returns on investment are good.
The hedge funds are devoid of many impositions, which are otherwise imposed on other mutual funds and investment banks. In the event when an individual invests in the Fortress IPO, he is not only investing money in the fund but he is also agreeing to participate in the risks involved in the hedge funds. Once the Fortress IPO hits the markets, the shares belonging to the FIG or the Fortress Investment Group traded around $32 per share.
This price was about 73% more than anticipated. However, during the same day of its launch, the shares had attained a price $37. Trading opened with $35 per share.
During this period, Fortress’s market capitalization was $12 billion. Fortress IPO were 34.3 million in number, which represented only 8.6% of the total shares. Fortress group, which takes care of private equity as well as hedge funds managed as much as $30 billion (February, 2007).
There are certain risks involved in the Fortress IPO. Fortress has maintained an yearly return of 39.7% since the year 1997. Investing in Fortress IPO means that the fees of the Fortress group is being invested into. If in a year, there is no increase in portfolio of Fortress, the “incentive fees” will be zero.
In the year 2005, Fortress registered an income of $192.7 million, when revenues were approximately, $1 billion. People are apprehensive about investing in hedge funds primarily due to the reason that these investments are more risky and that the minimum amount, which can be invested is comparatively higher than what can be invested in mutual funds or investment banks.
Another problem pertaining to the Fortress IPO is “high water mark”. If in a year, there is a 10% drop in the funds, no incentive fees will be shelled out till the time the loss is not compensated for or made up. This could take several years, one prominent reason for the closing down of the hedge funds.
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Last Updated on : 30th July 2013