Fortress Investment Group finalized its S-1 filing today with a proposed market capitalization of $7 billion. They are among the first global private equity firms that are listing themselves on the public markets. Other firms have listed single funds on the exchanges as ways to raise permanent sources of capital. Fortress is taking the next step and taking their entire firm public.
I am not going to go through the S-1 in detail - this one speaks for itself - a 9 year old firm with $30 billion under management founded by a handful of guys in their early 40s. Take a look at the revenue from management fees and incentive allocation and you will see a pot of gold.
An unintended consequence of this move to become public is the intense scrutiny the firm is opening themselves up to by being a public company. Their S-1 begs the question: Why go public? If this is such a profitable business for its managers already, what do they have to gain by going public?
The company is listing the following reasons: people, permanence, capital, currency. In essence the firm feels that being public will allow them to provide financial incentives for employees, have permanence as an institution, more easily access capital from the public markets, and have extra public currency for acquisitions.
These are all solid reasons and Fortress is definitely showing they want to be a pioneer of Private Equity and go down in history. It will be interesting to see if other firms follow.
My personal feeling is that private equity can be risky and the public may not be equipped to tolerate this risk. On the other hand, PE firms are becoming so sophisticated that it is difficult to differentiate themselves from the investment arms of most prominent boutique investment banks. If Goldman, Lazard, and other boutiques can go public, it shouldn't be any different for great private equity firms.