Update on Fortress Investment Group, LLC, Hedge Funds and a Reader’s Suspicion About All Aboard Florida/Brightline

Fortress

In February 2007, Fortress became one of the first publicly-traded US hedge funds.

ALL ABOARD FLORIDA / BRIGHTLINE IS A WHOLLY OWNED SUBSIDIARY OF FLORIDA EAST COAST RAILWAY (FECR).  FECR  IS A WHOLLY OWNED SUBSIDIARY OF FORTRESS INVESTMENT GROUP, LLC. (FIG).

While Fortress Investment Group became one of the first publicly-traded US hedge funds in 2007, a darling of hedge funds, as of March 31, 2016 hedge funds now represent 13.17% of their $ 9.3 billion of assets under management (Source http://www.fortress.com).

In 2015, according to Bloomberg Technology, FIG’s “profit declined 12% while shares slumped 31%.”

According to a FIG statement on May 5, 2016, the firm posted a Q1 net loss in the first three months ending March 31, 2016 of $ 16 million compared to a net income of $ 87 million a year ago.

But as also reported by Bloomberg Technology on April 8, 2016 “Fortress Investment Group paid its three top executives bonuses worth a combined $ 43.8 million last year as the companies shares fell 31%.”

Co-Chairmen Pete Briger received $ 22.6 million, while Wes Edens received $ 12.7 million. The bulk of it was paid out in cash and the remainder in restricted stock.  This is in addition to their $ 200,000 salaries.

CEO Randy Nardone’s bonus was $ 8.5 million. Nardone’s and Eden’s bonuses were their largest since FIG went public.

48167560-alpha-peter-briger-530.530x298

Pete Briger

Wes Edens

Wes Edens

Note: Wes Edens is also CEO of New Fortress Energy Group.  Please see related article on how New Fortress Energy was formed to create “a global (emphasis added) Liquified Natural Gas (LNG) production and distribution business, in Florida, focused on specific end markets, including, but not limited to, Power Generation, Marine, Rail, Oilfield Services and Mining.”

It will enable these “end markets” to “convert their operating assets from diesel or heavy fuel oil to natural gas.” (Sources: Fortress Investment Group, LLC./New Fortress Energy.)

https://verocommunique.com/2015/12/17/lng-and-a-report-on-other-affiliates-in-the-fortress-aaf-brightline-club/

Before we share a reader’s suspicion about All Aboard Florida, here is the landscape for hedge funds.

As reported by Edward Krudy of Reuters, “Hedges have underperformed costing us millions,” New York City’s Public Advocate Lititia James told the  board of New York City Employees Retirement System (NYCERS) in prepared remarks. “Let them sell their summer homes and jets, and return those fees to their investors.”

The board of NYCERS, New York City’s largest public pension, voted to exit all hedge fund investments.  The NYCERS fund, with assets of $ 51.2 billion as of January 31, 2016, follows the California Public Employees’ Retirement System (CALPERS) exit from hedge funds, as well as public pensions in Illinois.

Hedge fund managers like to have pensions as investors because they leave their money in longer than individuals.

According to a May 5, 2016 article by Katherine Burton of Bloomberg, “In the last two quarters, investors have pulled more money from hedge funds than they put in – almost $ 17 billion – the worst outflow since 2009.  More are demanding that struggling funds lower the fees of two percent of assets and 20% of profits they’ve typically been charged.”

On April 26, 2016, Edward Krudy of Reuters, wrote that Dan Loeb, one of the hedge fund elite, wrote to investors that the industry is “in the first innings of a washout.”

At the annual Berkshire Hathaway shareholder meeting at the end of April, 2016 Warren Buffett told investors to “keep money away from hedge funds because of their high fees and lousy returns.”

Now to a reader’s suspicions about All Aboard Florida / Brightline.

suspicious21

All Aboard Florida / Brightline recently announced it had secured anchor tenants for it’s Miami Central Station.  The 190,000 square foot office tower is 33% leased. (Source: The Real Deal, South Florida Real Estate)

all-aboard-florida-miamicentral-extension-nw-street_view

All Aboard Florida /Brightline rendering of the Miami Central Station

In addition to office space, All Aboard Florida / Brightline is developing retail spaces, restaurants, condominiums and the like.  People will be flocking to their Transit Oriented Development station areas to have the ease of shopping, have many venues for dining out, and to not have to have a car because of high speed rail access.

Here is the rendering of the West Palm Beach Station / Same deal

AAF West Palm Beach

And Ft. Lauderdale

ft. Lauderdale

So here is the suspicion: All Aboard Florida / Brightline may know full well now that their high speed train is not financially viable.  But if they can raise the money to build it, they will have their real estate position in place and in time will declare bankruptcy for their high speed train interests.

Because their real estate interests involve so many businesses and individuals, either the State of Florida or the Federal Government will intervene to take over and fund the train.

And All Aboard Florida / Brightline will be left with the riches of their real estate.

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