The brewing dealmaking wave in private credit
Sixteen years ago, Fortress Investment Group was the first large private equity firm in the US to go public, minting a large windfall for co-founders Pete Briger and Wes Edens while setting the stage for rivals Blackstone, Apollo, KKR and Carlyle to also list their shares.
But Fortress is now, in effect, becoming a private partnership again, unwinding the New York investment group’s run in the public spotlight.
On Monday, DD’s Antoine Gara reported that Fortress’s controlling shareholder SoftBank had struck a deal to sell the group to an arm of Abu Dhabi sovereign wealth fund Mubadala and Fortress’s own employees.
Mubadala will own 70 per cent of Fortress, while insiders like founder Briger and top investment staff will own the remaining 30 per cent of the $46bn in assets group. Fortress employees will control its board and be able to gain majority ownership depending on its financial performance in the coming years.
Briger characterised the deal as a “management buyout”. He and Edens will also step down as co-CEOs in a succession plan that hands day-to-day leadership responsibilities to managing partners Drew McKnight and Joshua Pack.
Days earlier, TPG struck a $2.7bn deal to buy privately held distressed debt giant Angelo Gordon, underscoring a wave of consolidation in private markets. TPG was expected to buy a credit manager after listing its shares last year. It had formerly owned a stake in Sixth Street, one of the industry’s fastest-growing players.
The deals have been focused mostly on credit investment arms that are seeing returns rise due to higher interest rates and are preparing for a wave of distressed opportunities.
Last year, General Atlantic bought Tripp Smith’s credit firm Iron Park as it decided to push into debt-based investments. Carlyle, meanwhile, purchased collateralised loan obligation manager CBAM Partners.
Traditional asset managers have got in on the action too. Nuveen bought European debt manager Arcmont last year, while T Rowe Price purchased Oak Hill for $4.2bn in late 2021.
Mubadala’s acquisition underscores the appetite among Middle Eastern investors to increase their exposure to private credit. Before buying Fortress, it created partnerships with Apollo, KKR and Ares.
Mubadala is not alone. In December, Bahrain-based Investcorp acquired Marble Point for about $200mn.
Though credit opportunities are on the rise, Briger warned that some rivals expanded too quickly in a low-rate environment.
“[There] have been some firms that have grown incredibly large at the wrong time in the cycle,” he said. “I think we will get bigger in this kind of environment. I think those firms that have gotten a lot bigger in credit and mezzanine credit could live to regret that.”