Private Equity Stock Review, Thursday 4/23/2009.

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1. Fortress Group (FIG) up 43%
2. Blackstone (BX), Apollo Mega Buyout Funds Get Hit With Markdowns
3. Disclaimer.

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1. Fortress Group (FIG) up 43%


Wow. Barron's flexing it's muscle like we have seen in decades, to be honest.

That'll put it 58% from where we added it to the Watch List. This brings up the question of whether one is better off giving Fortress your money to manage, or instead owning shares in Fortress, because we can assure you -- funds managed by Fortress are not up 58% from January 7th !



Barron's Extremely Bullish On Fortress Investment Group (FIG

This morning, Barron's penned a bullish piece on private-equity shop, Fortress Investment Group (NYSE: FIG), causing shares of FIG to bounce $0.52 or 19% to $3.01.

Like many have said before, Barron's thinks Fortress will benefit from purchases of distressed U.S. bank assets. Barron's wrote, "At its current price, buying shares of Fortress could be like buying a call option that CEO Wes Edens and company will exploit the Federal Reserve's $200 billion Term Asset-Backed Securities Loan Facility (TALF), a program designed to bail out credit-card and consumer lending."

If Fortress is successful at raising additional funds it will then be able to buy distressed assets with the government's no-risk capital to fund the buyouts at deep discounts to intrinsic value. Several years down the road, those investments could potentially swell in value as the economy turns around and assets approach market value.

As Fortress has been hit with redemptions, it has downsized its operations greatly. Fortress slashed its number of hedge-fund managers in Q4 from 25 to "just 3 or 4". Peter Briger, an executive at FIG, told investors that the layoffs have "simplified…the operation of our business greatly."

Michael Novogratz, who runs the Drawbridge fund, sounded fairly confident last month that he can attract new capital. "I do think that with a few more months of positive performance, [since] we have been in talks [with] lots of investors…that you will start to see inflows into the funds," he told analysts.

Fortress paid off $7.2 billion of debt of its portfolio companies last year. The balance of Fortress debt is mostly due not until 2012. Fortress' own company debt was refinanced in the fourth quarter with looser terms.

If Fortress AUM swells, that will lead directly to a rise in Fortress' incentive income, and investment income, both of which are obtained as a percentage of the profit on the firm's assets.

Fortress struggled in 2008, but with the stock trading below the market multiple, Barron's said it will not take much to please new investors in shares of Fortress' stock.

Barron's: http://online.barrons.com/article/SB124035327624740747.html?ru=yahoo&mod=yahoobarrons


2. Blackstone (BX), Apollo Mega Buyout Funds Get Hit With Markdowns

Mega buyout funds managed by private equity titans Apollo Management LP and Blackstone Group LP (BX) have joined an increasing number of limited partnerships that have experienced sharp drops in value.

Both firms recently disclosed to their investors the values of their last buyout funds at year-end, and the figures certainly highlight the economy's impact on their highly-levered companies, as well as the influence of mark-to-market accounting.

Apollo Investment Fund VI LP, a $10.1 billion investment vehicle that closed in 2005, was held at 34% below cost, according to investors. Blackstone Capital Partners V LP, the largest private equity fund ever raised at $21.7 billion, was held at 20.5% below cost, investors said.

As of Sept. 30, both funds were being held at 10% below cost.

(Dow Jones LBO Wire covers news about private equity buyouts)

Representatives for Apollo and Blackstone declined to comment.

Though Apollo investors expected the firm to take a substantial hit given the firm's turnaround focus, some wonder whether the firm should have written down the fund even more.

"Their deals have been ugly," said one limited partner.

Fund VI deals include Berry Plastics Holding Corp., Noranda Aluminum Holding Corp. and Hexion Specialty Chemicals Inc., all of which have received downgrades from Standard & Poor's Ratings Services.

But probably the most notable deal is Harrah's Entertainment Inc., which has struggled with its debt covenants. Harrah's was acquired by Apollo and TPG Capital LP in January 2008 for $27.8 billion.

Blackstone Group also participated in the Harrah's deal, injecting $137.5 billion of equity out of its Fund V, and undoubtedly contributing to the fund's write-down.

Other Blackstone V deals include Hilton Hotels Corp., which has been hit by a downturn in the hotel market. The firm bought the hotel chain for $26 billion in 2007, and included $1.4 billion in equity from Fund V.

Fund V also took part in such large transactions as Freescale Semiconductor Inc., Biomet Inc., Michaels Stores Inc., Nielsen Co., Catalent Pharma Solutions, Travelport Ltd., Deutsche Telekom AG, ReAble Therapeutics Inc. and Pinnacle Foods Corp.

-By Keenan Skelly, LBO Wire; 201-938-4314

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