Fortress at the Ramparts - TheStreet

Fortress at the Ramparts

The hedge fund IPO is due to price Thursday evening.
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If 2006 was the year of public offerings for boutique investment banks, this year could be the year of hedge fund IPOs.

Fortress Investment Group

is expected to price its much-anticipated initial public offering late Thursday in what should be the largest IPO so far this year.

As the first hedge fund to go public, Fortress could be instrumental in opening the doors for more hedge funds and other alternative investments to look to the capital markets to help them build their businesses. Of course, much depends on how well the IPO is received by investors -- but from the looks of pre-IPO demand for the stock, that shouldn't be a problem.

Fortress plans to raise up to $634 million in the IPO by offering 34.2 million shares. They are expected to price within a range of $16.50 to $18.50 a share. The deal could value Fortress at around $7 billion.

Observers are looking for the hedge fund to price toward the high end of its range.

One trader said Fortress had garnered so much interest that an investor luncheon it scheduled to hold on Wednesday was completely sold out. (Fortress declined to comment for the article, citing that it was in a quiet period.)

"IPO markets have windows, and the window is open for private equity right now," says Sal Morreale, an institutional sales trader at Cantor Fitzgerald who specializes in IPO trading.

"If you look at all the private equity deals being done, especially in the merger arena, it just makes a deal like this look very attractive," he adds. "It wouldn't surprise me at all to see more come out."

Fortress has approximately $30 billion in assets under management in three primary businesses -- private equity, hedge funds and publicly traded real estate vehicles known as castles.

The company says in order to "maintain and expand" its position as a leading global alternative asset manager, "we need people, permanence, capital and currency. As a public company we will be best positioned to meet each of these goals."

In December, one month after Fortress filed its registration for the IPO, Japan's

Nomura

(NMR) - Get Report

investment bank said it was buying a 15% stake in the hedge fund firm for $888 million. The deal recently closed.

While institutional investors have already gobbled up shares in anticipation of the IPO, average investors will also eventually be able to take part in the precedent-setting stock listing, says Tim Connolly, CEO of Turnaround Partners in Houston.

"The opportunity to pursue an investment in a hedge fund that could have venture capital returns with public market liquidity -- that's a good deal," Connolly says. "By going public they create a very transparent process for investors to look at."

After the filing, Fortress intends to have 89.3 million shares of common stock outstanding. Shares are slated to begin trading on the New York Stock Exchange on Friday under the symbol FIG.

Goldman Sachs

(GS) - Get Report

,

Lehman Brothers

(LEH)

,

Bank of America

(BAC) - Get Report

,

Citigroup

(C) - Get Report

and

Deutsche Bank

(DB) - Get Report

are underwriting the IPO.

As more hedge funds go public, the move toward the public market could change the very nature of the game, some observers say.

Richard Bookbinder of Bookbinder Capital Management, a New York investment management firm that focuses exclusively on investing in hedge funds and doesn't currently invest in Fortress, says the offering doesn't necessarily mean that there will be a mass movement of hedge funds to the open markets.

"You're going to see people evaluate whether they want to be in the public domain," he says. But he adds that with all the leveraged buyouts taking place today, "many people don't want to be in public focus all the time," he says.

That being said, Fortress' IPO "represents a unique opportunity for a firm that is clearly global in nature, has built out an infrastructure, has a portfolio and an asset base that is diversified across a number of different strategies."