Is Fortress’ subprime exposure worse than it appears? 

Since early last week, when Fortress shares were on an upswing, the bottom has fallen out of the stock. It’s down nearly 20 percent since Tuesday.  Late last week, the stock went from down to sinking fast, a drop that continued on Monday. Thursday’s 11 percent drop was it’s biggest one day slide since going public in February.

What’s happening? Surely there is a public filing or note that can be pinned to the loss. Actually, the company hasn’t issued a public statement in weeks. A quick search of all the major sellside shops produces no research notes that make a negative call. So it isn’t exactly clear what’s crushing the shares. Sure, financial stocks are taking a beating. And the credit market picture is darkening, which isn’t good for any private equity player like Fortress. The market doesn’t seem confident that Fortress’ hedge fund operation is able to offset any difficulty its buyout group may encounter.

Shares of the Blackstone Group, one of the few other publicly traded buyout firms in the U.S., are getting hit too, but not nearly as hard as Fortress.

So what’s behind the slide? Once hedge fund source who did not want to be named suggested that Fortress has a lot of exposure to the subprime credit mess. Parsing out the details of their exposure, like any financial institution, is not easy to do.  Fortress’ portfolio company Nationstar halted US loans in late September, as first reported by Reuters.

What other exposure lies ahead for the company and its portfolio is not clear. But whatever that may be, the market thinks it isn’t very pretty.

(Photo. Executives and family members of Fortress Investment Group on the day the firm went public. Reuters file)