Fortress to Close Flagship Macro Hedge Fund

Fortress Investment Group LLC plans to close its flagship macro hedge fund after heavy losses and investor withdrawals, according to people familiar with the matter.

Michael Novogratz, who runs the fund and is among Wall Street's best-known traders, is expected to leave the private-equity and hedge-fund firm, these people said.

The fund, launched in 2002 to bet on global macroeconomic shifts by trading in equity, debt, commodity and currency markets, is down 17.5% so far this year through September, according to a regulatory filing. That compares with a 0.6% loss by macro hedge funds on average, according to research firm HFR. Due to investment losses and client withdrawals, the fund manages about $1.6 billion today, down from more than $8 billion in 2007.

Run by Mr. Novogratz, a former college wrestler known for his high-profile public predictions about global economic trends and a colorful sartorial style, the Fortress Macro fund has been in a serious slump for over a year. Last year, the fund lost 1.6%, compared with a gain of 5.6% for the average macro hedge fund, according to HFR. Wagers against U.S. government bonds and the Japanese yen cost the fund, among other moves.

Fortress has spent over a year trying to turn around the fund, which has shrunk to well under 5% of Fortress's assets under management and earnings over the past year. In July, Mr. Novogratz assumed control of the fund after previously sharing it with Jeff Feig, a former Citigroup senior executive who subsequently departed the firm. At the time, the firm disbanded its model of employing five portfolio managers to helm the fund, which was down 10% for the year at the time, in favor of Mr. Novogratz running the fund alone.

But the fund continued to bleed money over the past three months due to poor currency trades, among other things, these people said. Early this year, the fund suffered when Switzerland's central bank surprised the market and scrapped the peg of the Swiss franc against the euro, a trade that was placed by Mr. Feig.

Mr. Novogratz, one of the four principals who run Fortress, earned more than $140 million in Fortress's final two years as a private company and became a billionaire on paper when Fortress went public in 2007. He currently owns 57.4 million of fully diluted shares of the company, according to a May securities filing, valued at about $318 million as of Fortress's stock price Monday afternoon.

A former Goldman Sachs Group Inc. executive and U.S. Army helicopter pilot who goes by "Novo," the investor has been a regular speaker at the biggest financial conferences and is known for his flashy work wear. He sometimes sports a white blazer or orange suit jacket.

One potential investor who met with Mr. Novogratz years ago said he put his feet up on a table and salted his conversation with expletives, unusual behavior for a manager seeking to raise money.

Fortress is expected to close the fund before year end, according to one of the people. Mr. Novogratz is said to have been partly responsible for the decision, a reflection of his frustration at the firm's inability to improve performance at the fund and anticipation of continued investor withdrawals, the people say.

On Monday, Fortress's website continued to list Mr. Novogratz as a member of Fortress's board of directors and chief investment officer of the macro fund. Fortress's stock price closed down 3.4% Monday, down more than 30% for the year.

Mr. Novogratz last year acknowledged the fund's difficulties and said in an interview with The Wall Street Journal that "you come back to work [each day] angry and frustrated."

Write to Juliet Chung at [e-mail] and Gregory Zuckerman at [e-mail]

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(END) Dow Jones Newswires

October 12, 2015 16:55 ET (20:55 GMT)

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