Fortress nears $5 bln final close on flagship credit fund

  • Credit Opportunities Fund IV includes a $2.8 bln commingled vehicle
  • Fund expected to close “imminently” 
  • Money raised may be for future opportunities as environment worsens

Fortress Credit Opportunities Fund IV is expected to close “imminently,” one of the people said.

Fortress has a year-end earnings call next week, but it’s not clear if the firm will update analysts on the fundraising at that time.

The fund is the fourth in Fortress’ family of flagship distressed credit-focused vehicles. It is made up of a commingled fund that has raised about $2.8 billion, with the balance in related accounts, according to two of the sources.

Fortress’s prior credit fund closed on a total of about $4.3 billion. Performance numbers for Fund III were unavailable. Fortress’s 2008 debut Credit Opportunities fund generated a net IRR of 25.4 percent as of Sept. 30, according to Fortress’ third-quarter earnings report.

The vintage 2009 Fund II, which closed on about $2.6 billion, produced a net IRR of 18.2 percent from as of Sept. 30, according to the earnings report.

The Credit Opportunities funds are private equity-structured vehicles which target investments in distressed and undervalued assets and credits. Fortress’s credit private equity funds had just over $7 billion in assets under management as of Sept. 30. The credit private equity funds include the Credit Opportunities funds, as well as credit vehicles for investments in Japan and real estate.

The credit private equity funds distributed about $400 million in the third quarter and $1.4 billion to limited partners as of Sept. 30, according to the earnings report. As of Sept. 30, the credit funds had about $4.8 billion of uncalled capital, according to the earnings report.

Overall, credit assets under management increased to $13.2 billion as of the third quarter, up from $12.9 billion in the second quarter, and $12.6 billion for the full-year 2013.

Peter Briger, co-chairman of Fortress’s board of directors, launched the credit business in 2002. Constantine Dakolias, managing director, is co-chief investment officer of the credit funds with Briger, who also is co-CIO.

The market has not necessarily been attractive for distressed opportunities over the past year, though the turmoil caused by the collapse in oil prices could give distressed investors a lot of work.

“Today the opportunity for credit investing is not apparent to non-existent,” Briger said on third-quarter earnings call. “The fundraising we’re doing today in credit is a function of the environment today being expensive and frothy, and hopefully down the road it will lead to a higher default environment, which will also hopefully be correlated with a high perception of risk environment. If we are able to raise a significant amount of capital, it will be for future opportunities as they come as the system gets shocked.”

In February, UniCredit agreed to sell its UCCMB bad loan management unit and a pool of non-performing loans to Fortress, according to Reuters. The agreed sale is part of the bank’s process of shedding non-core assets.

Separately, Oaktree Capital Group LLC also is preparing to close on a fresh pool of capital for distressed opportunities. Oaktree expects an imminent first closing on its flagship distressed fund, Oaktree Opportunities Funds Xa and Xb. Xa is targeting $3 billion, with another $7 billion planned for Xb, a reserve fund that will invest if the opportunity is right.

“If the environment were to darken further – such that there is more distress – then at our option, we can swing into investing the capital for Fund Xb whenever we want,” Oaktree Co-Chairman Howard Marks said on the firm’s fourth-quarter earnings call.

Update: The eighth, ninth and 13th paragraphs of this story were added on Feb. 24.