Fortress Investment Group last night priced its initial public offering shares at $18.50, at the top end of its projected range of $16.50 to $18.50, valuing the company at about $7.4 billon. Fortress Investment is the first US hedge fund and private equity group to go public.
The asking price of between $16.50 and $18.50 for the shares on offer represents 18 to 20 times the group’s expected 2007 profits, which is about twice the valuation of Goldman Sachs.
Some observers have been shocked by the large figure, with one banker calling the suggested valuation “very rich.”
The company is nonetheless generating intense demand for its shares. The investment banks managing the deal, including Lehman Brothers, Goldman Sachs, Bank of America, Citigroup and Deutsche Bank, have received requests for more than 925 million shares.
A source close to the deal said demand for the shares was “insane and ridiculous” claiming it had far surpassed expectations of the deal’s book-runners and Fortress’s management.
Some observers have noted a potential drawback in Fortress going public, arguing that the move hinders the entrepreneurial spirit that has made hedge funds so successful.
It is believed that if Fortress shares perform well it will not be long before other alternative investment managers follow its example.