Fortress CEO to analysts: We don’t call them “losses”

May 13, 2008

Forgive Wes Edens, CEO of Fortress Investment Group, for being a bit tetchy these days.

His publicly traded investment group posted a first quarter net loss of $69 million, compared to gains of $62.1 million a year earlier, as the markets pummeled its public stock holdings, among other factors. And its share price has fallen by half since it listed just over a year ago on the New York Stock Exchange.

So when an analyst pointed out on last week’s first-quarter earnings call that FIG’s public portfolio holdings fell from $7.8 billion just over a year ago to $765 million now – a $7 billion decline – Edens struggled to avoid using the dreaded “L” word, for loss. Most of the decline, he said, was “a reduction of market value,” or maybe an “unrealized” loss, since it continues to hold most of the assets, having sold only around $1.5 billion of them.

“I think that the use of the word loss in this case is pejorative and actually not at all accurate,” sniffed Edens to Rashad Fonti, analyst from Citigroup, whose bank – like most others – has used the word “loss” all too often in recent months in describing its performance.

Edens, a hedge fund guy who has evidently not gotten used to running a public company and being subjected to pesky analyst questions (or worse, media questions), took umbrage when Fonti basically said the company had failed its investors by not selling the stock holdings before the market turned last year. (Underlying message: how smart are you overcompensated hedge fund guys anyway?)

“You were almost $8 billion, (and now) you’re down to less than a billion dollars,” said Fonti, according to a transcript of the call. “You didn’t take the gains. The money was lost.”

That was all a bit much for Edens, who basically said the market is wrong in its valuations. “It’s actually not a loss as long as we still own the investment, right? And since we have investments in companies that we think have a tremendous amount of value, it’s a mark-to-market issue.”

Right. Those markets have a way of getting it all wrong. And hey, while we’re at it, who needs this quarterly numbers stuff anyway? We’re a long-term business. Get it?? LONG-TERM. And you analysts should be happy we give you any insight at all. Now go back and rework your models…

“We don’t really measure our company on a quarterly basis,” Edens told the analysts, as part of a discussion over whether it may change its dividend to adjust for ups and downs in performance. “We have quarterly conference calls like this to give you insight into how the company is doing, but we really look at the company in the aggregate in the long term.”

“Having some sort of knee jerk reaction to a quarter is not the right thing to do.”

Well, that settles that.

4 comments so far | RSS Comments RSS

take a snide tone, snicker, and take potshots at someone who has achieved much more success in his profession than you will ever at yours. but the reality is that he’s right. but i imagine you won’t pen an article confessing your idiocy years from now when the investments can be properly evaluated.

Posted by steve | Report as abusive

Yeah, he’s right, Edens is always right. Nicky the Greek and B the Hunter were right as well. Oh and those LTCM boys had so many degrees and awards, ain’t that sweet! Wes eats the chunky, a rose is still a rose, a rip a rip.

Posted by Greenwich Monkey Tard | Report as abusive

The bias is that when the mtm is favorable, one will take the gain, but when the mtm us not favorable, one argues the technical point about unrealized versus realized. The point is that all of us “market participants” have agreed that, while not perfect, mtm is economically more accurate than other measures. Couple that with the fact you ARE public (a public offering that made Wes fairly rich to begin with – his underling made their money with the gs ipo, why not him?) and you need to explain yourself. that is the game.

Posted by not long fig | Report as abusive

a loss is a loss, unrealized or not. idiot.

Posted by bob | Report as abusive

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