Fortress Investment Group ( FIG) may aim to ramp up its investments in mortgage paper, which have starkly fallen out of favor on Wall Street. The U.S.'s first publicly-traded alternative investment firm says it could step up its investment in residential asset-backed debt as the market dislocation subsides over the next two or three years. "The next two years certainly we're going to be very focused on the entire residential and asset-back sector," said Co-President Peter Briger Jr., during the company's third-quarter earnings call. The Fortress executive said that he would not be surprised if the investment manager sought to raise additional funds "to go after those assets on a stand alone basis," but didn't elaborate further. "At Fortress we don't like to bet the ranch, and lose the ranch," Briger later added. He also said the company doesn't like highly leveraged fixed-income investments. Fortress stock jumped about 6.6% to $18.34 on the heels of Briger's comments. The company's performance comes a day after private equity firm Blackstone Group ( BX) reported a net loss of $113.2 million, or 44 cents a share, including costs of $802.6 million, mostly from compensation related to its June IPO. Blackstone, which has been pummeled in the market since going public, warned that it could record losses "for a number of years" related to its IPO.
Fortress reported a loss of $37.6 million, or 52 cents a share, in the third quarter, compared with profit of $64.7 million in the third quarter of 2006. The third-quarter results included a $54 million charge stemming from its IPO. The market had speculated that the publicly-traded hedge fund would post significant losses, due to being stuck with subprime or CDO paper. But CEO Wes Eden said that the company did not have exposure in that sector and added that it did not have any exposure to structured investment vehicles. Trouble in the market for SIVs -- investment vehicles structure similar to CDOs, some of which contain subprime paper -- have led to the proposal, spearheaded by Citigroup ( C), of a vehicle that would bail out banks and financial institutions who could see billions of SIV assets come onto their balance sheets. Fortress reported growth of assets under management to $39.9 billion from $29.9 billion. That resulted in the collection of $219 million in fees for managing clients' investments, based on fees of 1% to 2% and a performance fee of 20%. That compares with $122 million for the same period last year. Eden said that the company maintained subprime exposure only via its servicing unit Nationstar Mortgage, which announced that it stopped originating wholesale loans in late September. The company also has exposure to mortgage debt via its investment in real estate investment trust Newcastle Investment ( NCT).