Fortress boss sees major debt boom as SoftBank sells company to Mubadala
A severe credit crunch caused by the banking crisis and rising interest rates will fuel a wave of defaults, said Pete Briger, co-founder of Fortress Investment Group, which SoftBank sold on Monday to a division of Abu Dhabi’s sovereign wealth fund and the asset manager’s own employees.
In an interview with the Financial Times, Briger said the expected market disruptions created the best opportunities for distressed asset investors since the 2008 financial crisis. That’s why it was a good time for Fortress employees to buy the $46 billion company that specializes in distressed debt and other debt-based investment strategies.
“The amount of credit that is currently in the world is decreasing every day. . . makes it difficult for companies to borrow. The banking system itself is also going through a structural transformation, because fractional reserve banking is no longer working in its current form,” said Briger.
“There has been a lot of damage to asset values, particularly in real estate, growth capital and venture capital,” he added.
On Monday morning, SoftBank announced the sale of the US investment group to Mubadala Capital, one of Abu Dhabi’s sovereign wealth funds, and Fortress management.
Mubadala buys 70 percent of the fort, while insiders such as Briger buy the remaining 30 percent. Fortress employees control the company’s board and could become majority owners in the coming years depending on the group’s financial performance.
Although the terms of the deal were not disclosed, the Financial Times previously reported that Mubadala and Fortress management would pay up to $3 billion, less than the $3.3 billion paid by SoftBank in 2017 to take the company private. Fortress and Mubadala declined to comment on the deal.
SoftBank acquired Fortress in 2017 when founder Masayoshi Son was looking to build an asset management arm within the Japanese investment conglomerate. But SoftBank’s strong interest in Chinese e-commerce giant Alibaba prompted US regulators in 2018 to say the two companies could not be integrated.
The arm’s-length partnership was “always good,” Briger said, but once SoftBank started raising its own Vision funds, “we were less interesting to them” and “we weren’t strategic.”
In August, SoftBank said it was considering selling Fortress after a flood of investment losses from its Vision funds.
“They were interested in the sale because of their own characteristics,” said Briger, who noted that the upcoming investment opportunities “proved to be a very good opportunity to buy a company like ours.”
During the sales negotiations, Fortress told its investors that “its fate is in its own hands” and that it can ensure that the structure of the deal does not undermine investment performance, the FT previously reported.
The buyout will create an opportunity for every Fortress employee to own a piece of the group and drive a succession plan. Briger and Fortress co-founder Wes Edens will step down as co-CEO, while managing partners Drew McKnight and Joshua Pack will become co-CEOs.
The succession is designed to provide a greater opportunity for a new generation of Fortress investors to take on leadership roles, said Briger, who will serve as chairman, oversee personnel matters and remain on Fortress’ investment committee.
“I could create my own fund within the company. . . I’m definitely not going to play golf,” Briger said. “I probably won’t have the last word on the 400 emails a day.”
Edens, who led Fortress’ private equity business, continues to oversee legacy investments, such as the 2007 takeover of the Florida-based rail line, which was converted into a high-speed commuter rail network called Brightline.
Fortress was the first major private equity firm to go public, listing its shares in early 2007. It spurred a wave of similar bids as Blackstone, KKR, Apollo and Carlyle all eventually went public.
However, Fortress’ acquisitions arm has struggled as over-leveraged deals such as its takeover of ski operator Intrawest soured during the crisis. Fortress’s private equity business has not raised a new buyout fund since the crisis.
The loan portfolio overseen by Briger has grown, though not as fast as that of rivals such as Blackstone. Loan-based assets under management increased from $24 billion at the time of SoftBank’s acquisition to $42 billion at present.
The group invested heavily during the pandemic and launched a number of strategies to finance litigation, intellectual property and investments targeting wealthy individual investors. Fortress is also raising new flagship funds for “opportunistic” investments and non-performing loans in Europe.
Briger said Fortress’ cautious approach to attracting new assets in recent years will be an advantage, as higher prices have caused problems for many competitors.
“This opportunity really hasn’t been there for the last 10 years,” Briger said of debt-based investment opportunities. “But there were companies that got incredibly big at the wrong time in the cycle.
“I think we’re going to be bigger in this environment. I think the companies that got a lot more credit and mezzanine credit may regret it.”