Fortress $41 Billion War Chest Coming to Asia

"Imagination is the one weapon in the war against reality."

Jules de Gaultier (1858-1942), French philosopher & essayist.

The announcement that a fully staffed operation will be established in Singapore in 2011 from one of the world's biggest alternative asset management firms, Fortress, fortifies a global trend to focus on emerging economies and regions. The fact that this is taking place from Singapore is also noteworthy as the destination of choice for global multi-strategy players.

Fortress will likely hold around 15% of AUM or $6.2 billion in firm assets in Asia over the next few years. This is likely to be an increase of $4 billion over current estimated levels. One way will be to increase the number of arbitrage opportunities generally in equities, currencies and growing local fixed income markets.

Like Och Ziff, expect an Asian-focused fund to be split off/created in the not too distant future. A second, broader strategy will be to launch a number of private investment vehicles focusing on private equity deals, infrastructure and even mining deals - all projects with positive NPV valuations taking IRR to +30% levels which may not be achievable in public markets.

Fortress expansion plans are a subtle reminder that the near-term opportunities in developed markets are likely to be subdued (i.e. low growth). A further reason for the move overseas will be to better establish local relationships with Asia's growing SWFs including CIC in China as well as with GIC in Singapore - helping those institutions with the execution of their own global investment strategies. It is also a play to get involved in the some of the biggest IPOs that are expected to take place out of Hong Kong as an increasing number of corporate names focus on growing their geographical footprint in the region.

Finally, Fortress may also be preparing to move corporate assets into a jurisdiction that might be deemed "friendly" given the continued pent-up antagonism by the US and European authorities (legal and taxation) against hedge funds in general. Overall, a sound move and one that is expected to be followed by other large US hedge fund players in coming months. Mahalo.