Fortress Investment Group started out as a private equity firm in 1998, founded by Wesley Edens (a former partner at BlackRock Financial), Robert Kauffman (a managing director of UBS) and Randal Nardone (another managing director of UBS). Fortress has four core businesses: private equity, credit, liquid markets and traditional asset management. The firm has been successful with taking portfolio companies public, including Aircastle, Brookdale Senior Living and RailAmerica. After reviewing Fortress' latest 13F--an SEC filing that reveals the majority of the firm's publicly owned securities--we have outlined its top five holdings (check out Fortress' entire 13F portfolio here).
Nationstar Mortgage Holdings Inc (NYSE:NSM) is Fortress' number one stock pick, with over 50% of the firm's 3Q 2012 13F portfolio invested in the stock. Fortress purchased Nationstar in 2006 and took the company public this past March. The loan service company operates throughout the U.S. with a focus on agency and government residential mortgage loans. The stock is already up 25% year to date in 2013 - driven by the announcement that it will acquire $215 billion in mortgage servicing rights (MSRs) from Bank Of America. Nationstar plans to pay $1.3 billion for the MSRs.
The transaction will add 1.3 million customers to the company's 1.2 million base. Fitch Ratings is now monitoring Nationstar to see how the MSRs from Bank of America will be integrated. Worth noting is that Fitch does not expected the recent transactions to impact the loan servicer's ratings. The snatching up of MSRs is something Fortress has been advocating since early 2012 when it launched a private equity firm to focus solely on the rights. In early 2012, Wes Edens, head of private equity at Fortress had this to say during an earnings call about MSRs:
“In the U.S., the regulatory drumbeat continues...there is going to be a flight of businesses and assets out of regulated financial institutions into non-regulated. We see that certainly in the mortgage-servicing rights."
As of its last 13F filing, RailAmerica was officially Fortress' second largest holding, and was acquired by the firm in 2007. As a publicly traded entity, the stock is now currently defunct after RA's operations were sold to Genesee & Wyoming Inc. last year. The deal was actually completed on October 1st, one day after the Q3 filing period ended, which explains why the holding is still listed.
Let's move on to the remaining four picks in Fortress' top five that are actively traded.